GLOBAL INVESTING FUND MANAGEMENT: Commonwealth targets China

By Angela Mackay in Hong Kong
Financial Times; Jul 25, 2003

First State Investments, the fund management arm of Australia's Commonwealth Bank, hopes to raise at least US$1bn from retail investors in China next year, once mainland regulators approve its new joint venture.

"We lodged our application several weeks ago and hope to gain approval by the end of next month," Ian Jenkins, chief executive officer of First State in Hong Kong, said this week.

"We are already looking for senior staff to man the business and we hope to launch our first products around Chinese New Year. I hope we will have $1bn under management by the end of 2004."

So far, five foreign joint ventures have started marketing stock and bond funds to local retail investors.

Mr Jenkins believes that while the retail market is important, "significant" progress will be made when these joint ventures are allowed to manage pension funds for big institutions. A prime target would be the central government's national society security fund, which has funds of about $25bn.

"Everyone is looking at how to build the industry. Some people such as ourselves have decided to enter early. Others, like Fidelity, are waiting to see how the market develops, particularly the fee structure," Mr Jenkins said.

Two years ago, the Commonwealth Bank decided it wanted to be the first Australian institution to open a funds business on the mainland. Mr Jenkins started preparing an expansion plan and realized the move would not be straightforward.

"Initially, we thought about buying into a local group but that seemed fraught with danger so we walked away from that deal in March 2002," Mr Jenkins said.

About a year ago, First State opted for the joint venture route. The firm identified Hantung Securities, a Shenzhen-based stockbroker, as its primary partner.

"Hantung - which takes its name from two of the great Chinese dynasties - is at the top of the second tier of stockbroking firms in China. It is an aggressive group - in fact its the third or fourth largest bond trader. It seemed a good mix particularly because the firm has a good ethical record," Mr Jenkins said.

First State has taken a 30 per cent stake, the maximum allowed under the current rules; Hantung owns 40 per cent; China Southern Airlines 16 per cent; and Nanjing YPC Refining and Chemical Company 14 per cent. First State plans to increase its share to 49 per cent when ownership rules are relaxed at the end of next year.

Mr Jenkins said Korn Ferry, the recruitment consultancy, was seeking executives for the Shanghai-based FSI Hantung Fund Management Company after the partners decided not to fill the top positions from within. "We want executives to feel that they have ownership of the joint venture and the products," he said.