Russell sells stake in Ping An JV with eye on WFOE
The break-up of another Chinese-foreign joint venture this week has highlighted the difficulties fund houses have in maintaining such partnerships.
The latest JV divorce, between Russell Investment and Ping An, was said to be the result of differences in investment philosophy and business culture.
It comes as JVs increasingly fall out of favour and the Western asset management partners turn instead to setting up their own wholly foreign-owned enterprise (WFOE).
Yesterday it was confirmed that Russell Investment Management had sold its 49% stake in Ping An Russell Investments, a Shanghai-based private manager focused on domestic high-net-worth individuals. The Ping An group, the parent company of one of China's biggest insurers, has purchased Russell's stake.
The Shanghai-based JV was launched in March 2011 and registered as a private fund manager with the Asset Management Association of China (Amac) in March last year. As of the end of 2014 the 34-employee firm had an AUM worth $1.3 billion, which it manages under advisory on behalf of domestic and global institutional investors.
The JV aimed to replicate Russell Investment’s business model and to provide multi-manager products in China. It predominantly focuses on private securities fund managers and targets HNWIs, but it is not engaged in the mutual fund industry.
It comes after two US financial institutions - State Street Global Advisors (SSgA) and BNY Mellon – last year sold their stakes in China JVs which focused on mutual fund business.
US-headquartered financial services firm Russell – which was acquired in 2014 by the London Stock Exchange - said it remained committed to China, but will operate in the market through its wholly foreign-owned enterprise (WFOE) in Shanghai. The WFOE – Russell Investment Advisors Shanghai – “will be staffed by July 2015,” a spokesperson at Russell’s Seattle office told AsianInvestor, without elaborating.
The newly-established WFOE will work with domestic partners to deliver multi-manager solutions and provide investment advisory services for QFII and RQFII funds, the spokesperson added.
JVs, a traditional route to enter China, have fallen out of favour because of various reasons. Market observers have pointed out that one of the main problems has been that partners have different visions for their business strategies, particularly in a rapidly-evolving marketplace like China.
Media reports yesterday, citing anonymous sources, said the core reason for the divergence was the difference in investment philosophy and business culture - for example, Russell has strict risk controls, but Ping An is seen as comparatively short-sighted.
Foreign managers such as BNP Paribas Investment Partners and Value Partners, even if they have a stake in a JV, have started to build their WFOEs in China. Most of them target institutional investors and high-end private clients.
However, foreign managers have hopes of acquiring a majority stake in a fund company in the near future. The China Banking Regulatory Commission (CBRC) last month proposed allowing majority foreign ownership of trust companies.
“CSRC [the China Securities Regulatory Commission] clearly would be forced to look at majority foreign ownership not only in mutual fund companies, but also a brokerage as well,” said Stephen Baron, deputy director of strategic solutions at Shanghai-based consultancy Z-Ben Advisors, at AsianInvestor’s Art of Asset Management forum in Hong Kong this week.