Published by Fund Selector Asia – 9th May 2019
It seems that barring a sudden policy reversal by local regulators, JPMAM will soon become the first foreign firm to own a majority stake in a China asset manager.
On Wednesday, JP Morgan Asset Management’s (JPMAM) joint venture partner Shanghai International Trust said in a posting on the Shanghai United Assets and Equity Exchange website that it would auction 2% of its holding in China International Fund Management. A sale to the US asset manager would lift its stake to 51%, giving it control of the business.
The joint venture with Shanghai International Trust, part of Shanghai Pudong Development Group, was formed in 2004. In May last year, JPMAM announced plans to expand its onshore business in China, expressing its intention to increase its stake in the joint venture to a majority interest.
That became more likely when, a month earlier, the Chinese authorities said that overseas firms could apply for 51% ownership of domestic fund managers – raising the limit from a 49% minority interest.
The bidding process for Shanghai International Trust 2% share began on Wednesday and end on 4 June. The price is likely to be a benchmark for future deals. JPMAM was approached but declined to comment for this article.
The development has occurred against a background of raised tensions this week in the 11-month US-China trade dispute.
Over 20 foreign firms have joint ventures with China fund managers, and nine have 49% stakes in their enterprises. In April 2018, Morgan Stanley won an auction to buy an additional 5.5% stake to 43% in its joint venture, in a deal that made it the top shareholder of Morgan Stanley Huaxin Fund Management.
Around 40 overseas asset managers have set up investment management wholly foreign-owned enterprises (WFOEs) which, depending on the type of licence they received, allows them to raise money from domestic investors to invest offshore (a qualified domestic limited partner licence), or sell a product invested in onshore assets to a maximum of 200 domestic qualified investors (private fund management licence).
However, in neither case are the WFOEs allowed to sell their products to mass market retail investors. Mutual fund management joint ventures don’t have that restriction, so JPMAM would have a first mover advantage among foreign firms in tapping a potentially vast source of assets.
