Fosun acquisition opens up new markets for Luxembourg private bank

Regulations and capital controls remain a burden for mainland Chinese investors seeking to diversify assets abroad

PUBLISHED : Sunday, 30 October, 2016, 7:25pm
UPDATED : Sunday, 30 October, 2016, 10:35pm

Chinese investment into Europe and North America is under scrutiny once again, but for one company from Luxembourg at least, gaining a Chinese parent has presented it with a route to expand in Asia.

In September, private bank Hauck & Aufhäuser was acquired by Chinese conglomerate Fosun. Last week, representatives of the company visited Hong Kong and Shanghai, along with a group of four associated fund managers, to explore the opportunities that this new relationship could provide.

“Before Fosun stepped in, we had never thought about bringing our funds or our clients to China,” Reinhard Pfingsten, Hauck & Aufhäuser’s managing director in Frankfurt, told the South China Morning Post.

“However, now we have a new network that can open doors for us and help with regulatory issues, allowing us to bring our own competencies as asset managers to China and Hong Kong investors, offering them a chance diversify their assets by investing abroad.”

Chinese investment in Europe is in the spotlight at the moment. Earlier this month, the German economy Minister Sigmar Gabriel reopened a review of the takeover of semiconductor equipment supplier Aixtron by China’s Grand Chip Investment. ChemChina’s takeover of Swiss agribusiness-giant Syngenta is also facing scrutiny from the European Commission.

In addition, the European Chamber of Commerce said in its position paper this year on the subject of overseas investment: “It is an increasingly serious concern that reciprocal market access has yet to be fully extended to European business in China.”

The Hauck & Aufhäuser example suggests, however, that for a European company, being acquired by a Chinese conglomerate can offer an opportunity to expand in this part of the world.

“In Hong Kong, the amount of people we have been able to meet, their seniority, and the quality of the questions they’ve asked us is certainly better than elsewhere, like Paris for example, and that is down to the relationship with Fosun,” said Dieter Kaiser from Robus Capital Management, one of Hauck & Aufhäuser’s clients who joined them on the trip.

Such links are particularly important given the fierce competition in the sector. There are no shortage of banks and wealth managers attempting to offer asset management services to wealthy residents of Hong Kong or mainland China, with major international players like UBS, Julius Baer all expanding their teams.

Every investor in China knows the yuan is overvalued and is depreciating, so they want to invest abroad

The challenges are also increasing. One private banker with a lot of experience in the region, Claude Haberer, chief executive for Pictet Wealth Management in Asia Pacific said: “We have seen a huge re-engineering of the private banking industry with the sale, closure and withdrawal of private banks [from Asia Pacific], partly because of the huge regulatory weight now bearing down on the industry.”

One particular problem for private banks and funds targeting mainland investors is the controls on capital leaving the mainland. Even if investors want to diversify their assets overseas, they may not be able to.

Nonetheless, Pfingsten says he understands the thinking behind such controls. “Every investor in China knows the yuan is overvalued and is depreciating, so they want to invest abroad. The only answer to this, for the authorities, is capital controls,” he said.

“At some point in time these will go, but it will take at least a year.”

Such capital controls are even having an effect on Chinese companies looking to acquire companies overseas, as the procedures required to transfer capital abroad for M&As are becoming more complex.

Nonetheless, the Hauck & Aufhäuser case suggests that more acquisitions are forthcoming.

“We fitted into Fosun’s portfolio, as they want to acquire services that Chinese peole will buy in three to five years, and private banking is one example,”said Pfingsten

“We also offer knowledge of the German Mittelstand [medium sized manufacturing]companies and so we can help with finding further potential acquisition targets there.”

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