SHENZHEN, China Ping An Insurance (Group) Co.s 50% stake in Fortis Investments will mark the first time a Chinese financial institution owns half of a global fund management company.
Its usually the other way around, analysts and others experts said.
The transaction, if made final, is also a strong indication that the nations second-largest life insurance company is embarking on an aggressive push into third-party asset management, analysts and other sources said. Fortis Investments has €245 billion ($387 billion) in assets under management, about half of which is managed on behalf of institutional clients. Ping An has 475 billion yuan ($68 billion) in in-house assets under management, according to the companys 2007 annual report.
The deals have always gone in the other direction; you usually see Western (financial institutions) buying a stake in Chinese asset management companies, said Donald A. Marchand, professor of strategy and information management at IMD, a global business school based in Lausanne, Switzerland. Mr. Marchand has co-authored a case study about Ping An and is familiar with the proposed deal.
Now, because of the huge valuations, (Chinese financial institutions) are able to make these very bold moves, Mr. Marchand added. I think in the next five to seven years, some of these players are going to rewrite the rules of the game.
Earlier this month, Fortis Investments the asset management subsidiary of Brussels-based Fortis SA/NV announced a tentative agreement to sell 50% of the company to Ping An for €2.15 billion. The transaction would create a new company, called Fortis Ping An Investments and would hand Ping An five seats on a 12-member board. Senior management and business strategy at Fortis Investments will be unchanged.
Fortis CEO Richard Wohanka declined to be interviewed. Spokeswoman Melanie Dunn said in an e-mail response: Our partnership with Ping An will provide us with unique access to the fast-growing Chinese and Asian markets. As such it will leverage Ping Ans well-established brand and extensive distribution capabilities for the benefit of our clients. Ping An currently has almost 40 million individual clients and almost 2 million corporate clients.
Fortis Ping An Investments will naturally be looking to leverage this potential retail, as well as institutional, client base, Ms. Dunn said.
Ping An company officials also declined to be interviewed for this article via company spokesman Shan Hock Liew.
The move came on the heels of Fortis announcement of a pretax write-down of €2.4 billion related to its subprime investments in 2007, according to the companys annual report.
The price of the proposed deal with Ping An is significantly lower than the €24 billion price tag that Fortis paid for 33.8% of ABN AMRO, negotiated before the credit crisis that emerged last summer.
Fortis had been part of a consortium, which also comprised the Royal Bank of Scotland Group Plc, Edinburgh, Scotland, and Banco Santander Central Hispano SA, Madrid, Spain, that succeeded in winning a 2007 bidding war against Barclays PLC to acquire ABN AMRO Holding NV. That deal handed Fortis the global asset management business and Dutch consumer banking units of ABN AMRO. As a result, Fortis Investments assets under management increased to €245 billion from €133 billion globally. In November 2007, after the majority of ABN AMRO shareholders approved the deal, Ping An had spent an estimated €1.8 billion to purchase a 4.18% stake in Fortis.
Several of ABN AMROs specialist asset management units including Montag & Caldwell Inc., Atlanta; Artemis Investment Management Ltd., Edinburgh; and International Asset Management, London continue to be operated separately from Fortis Investments and will not be included in the transaction with Ping An.
Although the price that Ping An paid is relatively low compared to the Fortis/ABN AMRO transaction, analysts questioned whether Ping An might have paid too much.
Based on preliminary information, the proposed price is about 17 times or 18 times the (price to earnings) ratio, which I think seems unattractive given the current market conditions, said Olive Xia, an analyst at Core Pacific-Yamaichi (H.K.) Ltd., based in Shanghai, who covers Ping An.
However, Ms. Xia and other analysts applauded Ping Ans bold move to access Fortis Investments money management expertise and global reach, which spans more than 30 countries.
Ping An is a pioneer in this regard, Ms. Xia added, no other (financial institution) has taken such a gigantic step.
Ping An also plans to tap into Fortis Investments expertise to offer Qualified Domestic Institutional Investor funds, which allow domestic investors to access overseas stock markets, consultants said. While many QDII funds have performed poorly in recent months due to overall volatility in global stock markets, analysts expect Chinese investors to increasingly diversify their equity portfolios overseas in the next several years.
The competition (in QDII) will intensify and Ping An wants to be ready for that, said Dorris Chen, analyst at BNP Paribas, based in Shanghai. QDII will pick up in the longer term.
Ping An is itself partly owned by London-based HSBC Holdings PLC, which has a 16.8% stake. Ping An officials are aiming to gather third-party institutional and retail assets as part of its three-pillar growth strategy combining insurance, banking and asset management services, analysts said.
Few global financial services companies have proven long-term success in their attempts to integrate insurance, banking and asset management. For example, after years of trying, New York-based Citigroup Inc. sold Travelers Life & Annuity Co. and other insurance assets in 2005 to MetLife Inc., New York. During the same year, Citigroup also swapped its asset management arm for Legg Mason Inc.s brokerage business. As part of the deal, Citigroup also received about 18 million shares in Legg Mason, based in Baltimore, Md.
But Ping An differs from some other established financial institutions in one key factor it is a relatively new player in a green field, Mr. Marchand said.
They havent been in insurance for 100 years, so theres a real possibility that they can reinvent what can be done by integrating (insurance with) banking and asset management, he added.
The transaction is in final negotiations and also requires regulatory approval before completion. The deal is expected to close at the end of the second quarter or beginning of the third quarter.
Contact Thao Hua at [email protected]