A spanner in the works for Aberdeen’s WFOE
Talk about a curveball for AMAC registration hopes. We have the first example of practicalities making headlines as opposed to pure fanfare when it comes to the Investment Management (IM) WFOE: Aberdeen has lost its GM. It may be the latest casualty of the hard and fast HR environment onshore. While no firm is immune to attrition, Aberdeen may have been particularly vulnerable. Despite being the first through the gate back in 2015, it faced the challenge of building a presence from the ground up from its barebones rep office. Comparatively, we believe this will not be so much of a problem for JP Morgan AM and UBS GAM – if one soldier falls, another steps into line.
Fidelity arranges its China cards
In stark contrast, after waiting to enter China on its own terms, Fidelity is now fully embracing “go big or go home” tactics. After Vanguard paved the way by elevating Charles Lin to head China three months ago, Fidelity is now following suit. The firm is sending former Beijing office Chief Rep Jackson Lee to Shanghai to sit at the head of its new IM WFOE, reporting to the head of APAC. These are the first of what we expect to be many examples of firms empowering individuals with the right experience and commitment by giving them the real authority to execute. No longer shoved under the umbrella of Asia or Greater China, China itself is now rightly being treated as its own market. The Chief Rep model is dead: this is not a business that can be done by remote control.
BlackRock furthers its push into Shanghai
BlackRock has launched a second QDLP product targeting US real estate following an initial launch with a healthcare fund. It continues to tap the network of its JV BOC as well as two of conglomerate Ping An’s AM subsidiaries and an IFA subsidiary of Lujiazui International Trust, among others. While this launch doesn’t reflect a recent quota top up by any stretch of the imagination, it is rather a move in anticipation of one as early as 2H17. Current quota is currently capped at USD100m, keeping hands tied to a great extent. With the wiggle room it has, BlackRock is likely hedging its bets across numerous products in order to trigger interest from HNWIs and counter the fickle interest often triggered by lack of product breadth – hook, line and sinker.
Citi and Credit Suisse: apples and oranges
Citi had its best year on record after dancing in the equity underwriting rain following the end of the IPO drought in 2016 – it topped the brokerage JV league table by underwriting small cap stocks from all over China. The JV enjoyed a nice bump in both revenue and profit to the tune of 79% and 120%, respectively. More interestingly, they also made some strong inroads into bond underwriting, a reward for the efforts to build out into this rapidly-expanding market over the past two years. Comparatively, Credit Suisse’s China JV profits went through the floor. We believe it was maintaining a hard focus on rolling out their new securities trading business at the cost of underwriting.
AXA IM, JP Morgan and a Shanghai showdown
AXA IM’s WFOE, the latest in a long line of IM platforms that are being established onshore this year, will be a sit and wait play; there are some clear indications that it is using the platform for future optionality as opposed to diving headfirst into the private fund business. It may be the first to come from this angle, but it certainly won’t be the last. As AXA IM builds out its China business through the new entity, pre-existing JV relationships will increasingly be tested – and not only their own. Aside from QDLP ambitions, AXA IM and JP Morgan AM have another more tangible link in common – their JVs are both effectively within the Shanghai Pudong Development Bank (SPDB) Group. While AXA IM bides its time with the long-term play, JP Morgan may get a leg up in distribution and tapping institutional investors earlier in the game by leveraging this relationship. Finding the balance between JVs and WFOEs will be a challenge for many, not least for Standard Life which this week announced its plans for a fully-owned platform.
CIC: Coming to America
CIC has openly professed its interest in further US investment citing a distinct taste for alts. At the same time, it is making an effort to move investment in-house. This may present a problem going forward due to potential restrictions over the next four years on Chinese direct investment into US real assets. We have already seen CIC use Invesco as a conduit in order to buy a building in New York. We could see the same approach used with Blackstone as CIC is a key shareholder. While other firms may be able to approach CIC with similar value offerings, Blackstone may be the sweet spot between building out internal capability and running a tight ship with imminent investments.
Chinese hedge fund managers go to Vegas?
The SkyBridge acquisition was timely. However, it speaks to the broader theme of Chinese firms hunting for financial targets abroad. The game has moved on from a Europe-only play two years ago, they are now on the lookout in the US. We would be interested to see if SkyBridge Capital receives an R/QFII license in the next year as a quota grant would suggest it will move its FoF strategy to China and invest into PFMs. Alternatively, it could also act as a bridge to many PFMs currently attempting to enter the US hedge and alternative fund market with solo efforts. At the very least, we expect more Chinese hedge fund managers to be poking around the SALT conference now that a familiar face is a stakeholder.