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SCMP Reporter

ABN Amro Asset Management is to acquire a 33 per cent stake in Beijing-based Xiangcai Hefeng Fund Management in a ground-breaking deal for the sector in China.

The purchase, to be announced today, will push the Dutch firm ahead of its rivals in the highly competitive market, according to sources close to the deal.

ABN Amro will become the first foreign fund manager to take a stake in an operating Chinese fund management firm. Xiangcai Hefeng will also have the opportunity to beat its rivals and be the first foreign-invested fund manager to launch a fund in China by using an existing permit.

Five foreign fund managers have won initial licences from the China Securities Regulatory Commission (CSRC) to launch joint-venture fund management firms - ING Group of the Netherlands, Societe Generale of France, Invesco of the US, Fortis of Belgium and Allianz of Germany.

But few have wanted to co-operate with an established partner because it involves lengthy negotiations on pricing and valuation with multiple domestic shareholders.

ING, which has a 30 per cent stake in China Merchants Fund Management, has filed an application to launch a fund series, allowing easy switches between four sub-funds, and is gearing up to be the first to launch such a fund in China.

But Xiangcai Hefeng has already won CSRC approval to launch a fund series and could proceed with an offer in the next three or four weeks, allowing ABN Amro to steal the glory.

The fund series, with open-ended sub-funds, would be the first of its kind in China, where portfolios tend to be either closed-end or open-ended products with little variety among them.

Under mainland regulations, each sub-fund has to raise a minimum of 200 million yuan (about HK$188.48 million).

Xiangcai Hefeng's chief investment officer, Deng Zhaoxiong, said ABN provided technical assistance on the design of the fund series.

Xiangcai Hefeng, set up last July with an initial registered capital of 100 million yuan, is one of China's newest fund management firms.

A Shanghai fund analyst said the fact that Xiangcai Hefeng had not launched its first portfolio might have helped reduce valuation difficulties during negotiations with ABN Amro. ABN Amro will buy shares from Xiangcai Hefeng's existing shareholders, according to mainland sources. It is not expected to disclose the purchase price.

Shanghai-based Xiangcai Securities, which has teamed up with CLSA to open one of China's few joint-venture investment banks, owns 40 per cent of Xiangcai Hefeng.

Shandong Xinyuan Holdings, an investment firm owned by Shandong Power Group, is the second-largest shareholder with a 30 per cent stake. Xinjiang Securities and Daqing Petroleum Administrative Bureau each own 15 per cent.

Xiangcai Securities is expected to remain the largest shareholder in Xiangcai Hefeng after the transaction. But after three years, ABN Amro will be allowed to increase its stake to 49 per cent, according to mainland rules.

The stakes are high in China's budding fund management market as investors look for new savings vehicles in a low interest-rate environment.

China's fund management market had grown about 50 per cent over the past year to US$16 billion, sources involved in the ABN deal said.



ABN Amro buys into China fund