JPMorgan was on Friday poised to become the first foreign company to hold a majority stake in a Chinese mutual fund business, two sources said, setting a precedent that one analyst said would trigger a wave of similar transactions.
A 2% percent stake in the venture, China International Fund Management (CIFM), changed hands in an auction at the Shanghai United Assets and Equity Exchange.
In a filing on Friday, the exchange did not identify the buyer, but two sources with knowledge of the deal, which still needs regulatory approval, told Reuters that JPMorgan Asset Management Co was the sole bidder. JPMorgan, which had held 49% of the venture, declined to comment.
Under rule changes announced by China in late 2017, foreign asset managers were authorized to own up to 51 percent of their Chinese mutual fund ventures.
But so far none had raised their stakes to absolute majorities.
Last month Beijing, embroiled in a bitter trade war with Washington that is weighing on its economy, said it would scrap financial sector ownership limits in 2020, one year earlier than scheduled.
Also on Friday, Morgan Stanley became the latest of a handful of foreign firms to take a majority stake in a China-based brokerage venture, also buying a 2% stake.
Peter Alexander, Managing Director of Shanghai-based fund consultancy Z-Ben Advisors, said both transactions were likely to be the tip of an iceberg.
“China policy, irrespective of ongoing bilateral trade issues, is centered on the opening up of the local financial services industry to global participation,” Alexander said, referring to the escalating Sino-U.S. trade war.
“What’s frustrating to us is seeing just how ill prepared the vast majority of global players are to move on the opportunity. Expect a scramble once people return from their summer holidays.”
The CIFM auction closed at a price of 241.3 million yuan ($34.78 million), the Shanghai Exchange said.
Alexander said that meant JPMorgan was paying a 33% premium to raise its stake to 51%, which he called “rather rich”, but “not over-priced”.
He expected the deal’s metrics would be applied to future similar transactions in China’s fast-growing, $2 trillion mutual fund industry.
Before the JPMAM bid, Shanghai International Trust – belonging to Shanghai Pudong Development Group – owned 51% of CIFM.
Source: Reuters.com