Societe Generale (SOGN.PA) is in talks to sell its 49 percent stake in a mutual fund joint venture with China’s Baosteel Group to global private equity firm Warburg Pincus, according to people familiar with the matter.
France’s second-biggest listed bank was among the first foreign companies to enter the Chinese mutual fund business when the authorities first opened the market up to foreign investors. In 2003, it teamed up with state-owned Baosteel Group, which operates China’s second-largest steelmaker, to create joint venture Fortune SG Fund Management.
But cut-throat competition from Chinese firms has led SocGen to rethink its presence in the country and comes after a string of foreign institutions, including Bank of New York Mellon Corp (BK.N), Aviva plc (AV.L) and Value Partners (0806.HK), sold their stakes in China mutual fund ventures.
SocGen declined to comment. Fortune SG Fund Management could not be reached for comment. Baosteel did not respond to a request for comment.
Fortune SG had 157.5 billion yuan ($23.6 billion) in assets under management at the end of June, according to official data from the Asset Management Association of China, making it the nation’s 16th biggest mutual fund firm by assets.
The sources did not disclose the deal value but fund managers typically fetch between 2 and 3 percent of their assets under management.
Warburg Pincus [WP.UL] is betting that China’s $1.2 trillion mutual fund industry will deliver strong returns in the long run, one of the sources said. It already has a relationship with Baosteel Group, having invested in its unit, Baosteel Gases, in 2014.
NEW CHINA BUYOUT FUND
Warburg, which is in the middle of raising about $2 billion in a new dedicated China buyout fund, declined to comment. Warburg has previously placed big bets on China’s financial industry. In 2014, it was the biggest investor in China Huarong Asset Management Co Ltd (2799.HK) ahead of the distressed debt manager’s Hong Kong IPO, with a $700 million commitment.
In 2013, Warburg also invested in London-based Santander Asset Management, which oversees more than 60 billion euros ($67.5 billion) and has operations across Europe and Latin America.
Under Chinese rules, foreign investors can own up to a 49 percent stake in a Chinese mutual fund venture. Partnering with state-owned giants like Baosteel can give foreign investors access to resources unavailable to privately-owned partners, but also exposes them to the risk of cultural conflicts.
Ivan Shi, head of research at fund research firm Z-Ben Advisors, said some foreign shareholders may not be willing to provide additional capital to their Chinese fund management ventures after Chinese regulators recently tightened capital rules on the subsidiaries of mutual fund houses and as the industry’s growth slowed.
In the trust industry, for example, foreign firms including Morgan Stanley (MS.N), Australian investment bank Macquarie Group (MQG.AX) and National Australia Bank Ltd (NAB.AX) have recently exited their trust ventures after China tightened capital rules, Shi said.