HK fund firm joins mainland venture

The first Hong Kong-mainland joint-venture asset management company has been set up, with the local fund house Value Partners taking a 49 per cent stake in the Shanghai-based asset manager KBC Goldstate Fund Management.

Value Partners said yesterday it would pay 40.5 million yuan (HK$49.7 million) for the stake in KBC Goldstate, which had 970 million yuan of assets under management in seven open-ended funds at the end of last year.

The stake was previously owned by Belgian financial group KBC.

The mainland fund manager will remain under the 51 per cent control of Shenzhen-based brokerage Goldstate Securities but will be renamed Value Partners Goldstate Fund Management.

Cheah Cheng Hye, the chairman of Value Partners, said KBC Goldstate was the smallest fund manager in the industry, and he admitted there was no guarantee that it would generate any profit in the next few years.

Market regulations mean fund houses can only provide a limited variety of products, and they are faced with challenges in reaching potential customers, as they rely heavily on mainland banks to promote and sell their products.

Cheah said the industry was also faced with volatility in the market as stock markets worldwide were driven by central bank policies instead of real economic activity or company performance.

However, he said, the acquisition was nonetheless an important strategic move to prepare for the gradual deregulation of the fund industry on the mainland, which would open doors to a wider variety of mutual fund products.

'China has one of the highest saving rates in the world and its pension fund business is just beginning,' he said. 'There is a lot of room for growth.'

The ratio of mutual fund assets to China's gross domestic product is relatively low compared with the other developed economies. At the end of last year, there were 69 fund management firms in China managing assets worth 2.19 trillion yuan, according to the China Securities Regulatory Commission.

KBC Goldstate is one of 39 foreign joint-venture asset companies on the mainland. Foreign stakeholders are mainly global investment banks and financial institutions including Deutsche Bank, UBS, Morgan Stanley, HSBC, Prudential, BlackRock, Invesco and Schroders.

Cheah said he believed that Value Partners Goldstate would have an edge over heavyweight foreign players because of its cultural affinity with mainland firms.

'We are humble people from Hong Kong who are friendly towards our cousins on the mainland,' he said. 'I think the mainland joint-venture partners feel more comfortable with us.'

As Value Partners was not the majority shareholder, its partner, Goldstate Securities, would retain its role as the final decision maker, Cheah said. But his company would contribute its expertise in product development, and in infrastructure such as compliance and risk control.

Value Partners shares yesterday rose 2.2 per cent to close at HK$5.17.