According to sources close to the matter, French banking giant Societe Generale are in final discussions with Warburg Pincus to offload their 49 percent stake in a mutual fund joint venture with Baosteel Group, a Chinese iron and steel company based in Shanghai.
China first allowed foreign firms to enter their mutual funds business in 2002 and SocGen, France’s second largest banking entity was first into the market. The company they formed with Baosteel in 2003 was named Fortune SG Fund Management.
In the intervening 13 years a plethora of foreign firms including Aviva, Value partners and Bank of New York Mellon Corp, who entered into similar ventures, have sold off their stakes citing an overly competitive marketplace. SocGen have finally given up hope, and Warburg Pincus, a U.S. private equity firm, are looking to take over the reins.
None of the firms involved commented on the news.
Fortune SG was in the top twenty mutual fund ventures by assets, with an estimated $20 billion in assets under their control as of the end of July, according to China’s Asset Management Association.
The sources who broke the news did not mention the value of the proposed deal, but in similar arrangements in the past, fund managers would typically pick up between 3 and 4 percent of their assets.
Warburg is playing the long game. They are betting that over the next 20-year period China’s mutual fund sector, which is worth over a trillion dollars, will deliver high returns. They are already very familiar with Baosteel, being investors in their gas subsidiary for the past two years.
“It’s well known that Warburg have been raising a kitty in the region of around two billion dollars,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management in a phone interview. “In the past they have put massive bets on the country’s financial industry, like with the 2014 investment in China Huarong, so they are continuing with that strategy.”
That $800 million China Huarong investment, which preceded the company’s IPO in Hong Kong, was not the first foray into foreign markets for Warburg. The previous year they built a mutual arrangement with London-based Santander Asset Management which manages over $100 billion across the euro zone and South America.
Under the country’s stringent regulations, 49% is the maximum stake allowed for foreign companies in China.
