Firms in Japan and China ready for overseas acquisitions

A growing number of Chinese and Japanese firms are looking to invest in overseas asset management firms, with analysts and bankers predicting Chinese companies might prove to have the bigger appetite over the next few years.

Investment bankers say that as of mid-May, companies from both countries are among the bidders still standing for the biggest money management prize on the block now: the $273 billion multimanager business of Seattle-based Russell Investments, being sold by London Stock Exchange Group PLC.

Investment bankers, who declined to be named, said Orix Corp., the Tokyo-based finance company, is bidding for Russell Investments through Robeco Group, the Rotterdam-based money manager with more than e250 billion ($279.83 billion) in assets under management. Orix acquired Robeco in 2013.

A Robeco spokesman declined comment.

In a telephone interview, Atsushi Horii, an Orix spokesman, declined to comment about Russell. But he acknowledged Orix is engaged “in a number of conversations” in pursuit of overseas money management acquisitions that can complement the Europe- and U.S.-focused business of Robeco with a presence in Asia, Latin America and the Middle East.

Bankers say at least one of what they believe are now fewer than 10 bidders remaining is a Chinese company, but declined to name the firm.

However, names offered up by bankers as potential bidders suggest a broad range of mainland businesses are considering asset management acquisitions now, from usual suspects such as Shanghai-based China Pacific Insurance (Group) Co. Ltd. to less obvious choices such as Shanghai-based Internet game provider Shanda Interactive Entertainment Ltd. and Haikou-based Hainan Airlines Co. Ltd.

Spokesmen for the two New York-based banks running the auction, J.P. Morgan Chase & Co. and Goldman Sachs & Co., declined to comment.

Bankers say that the Asia-based interest in Russell reflects broader trends.

“It's definitely fair to say both (Chinese firms and Japanese firms) are now looking outward much more,” said Ian Martin, vice chairman, Asia Pacific, in Sydney with Berkshire Capital Securities LLC, a New York-based investment banking focused on the financial services industry.

Of the two, Chinese firms appear to be the more ambitious. They are taking an active strategic approach, including exploring how innovations in their home market — such as Internet distribution — could be applied to Western markets, noted Daniel Celeghin, a Hong Kong-based partner and head of Asia-Pacific with Casey Quirk & Associates LLC, a Darien, Conn.-based strategic consultant to the money management industry.

A combination of huge balance sheets and an “ugly demographic picture” at home is prompting Japanese financial firms to eye overseas asset managers as well, but more for incremental investments that can deliver a safe, steady yield than for transformational acquisitions, said Mr. Celeghin.

Japanese money managers' investments in overseas managers, in search of more specialized, value-added investment capabilities, have mostly been for minority stakes, noted Taeko Sumiyoshi, managing director of financial industry consulting firm Greenwich Associates LLC's Tokyo office.

In recent years, Japanese firms have made a number of such investments — including Dai-Ichi Life Insurance Co.'s 2012 purchase of a 20% stake in Janus Capital Group and Nippon Life Insurance Co.'s April 2013 purchase of a minority stake in Principal Global Investors' Post Advisory Group subsidiary. But — aside from Nikko Asset Management Co.'s decisive moves to build strong capabilities in Asia-Pacific over the past five years — there has been no big push by Japanese firms to build a global presence, agreed Mr. Celeghin.

The rebound by Japan's stock market since Prime Minister Shinzo Abe came to power in late 2012 has left Japanese asset managers better positioned to invest in their businesses should they choose to do so, he said.

Operating margins for Japanese managers have rebounded to about 35% — roughly in line with global norms — from 20% four years ago, noted Sadayuki Horie, senior researcher with Nomura Research Institute, Tokyo, in a separate interview.

For now, that windfall isn't being deployed to acquire global capabilities that could offer more sustainable growth prospects, said Mr. Celeghin.

That could change, said Mr. Horie, with a pickup in overseas acquisitions by Japanese managers likely as their financial conglomerate parents push to raise asset management's contributions to their revenues to more than 10% from 3% to 5% now.

Japanese managers will have to acquire more distinctive investment capabilities to meet the growing demands of institutional investors at home or “they will lose the game,” he said.

Meanwhile, a broader group of Japanese firms could be looking at asset management's attractive margins as well.

On May 11, Mitsui & Co. Ltd., a giant Japanese trading company based in Tokyo, announced it would buy a 20% stake in Westbourne Capital, a Melbourne, Australia-based infrastructure debt boutique, with an option to boost its ownership to 30% within five years.

Asked whether Mitsui & Co. has broader asset management ambitions, Hiroo Yoshida, a Tokyo-based spokesman, said the company will consider much bigger acquisitions if they become available.

While conceding Japanese asset managers have taken baby steps abroad thus far, an executive with one leading firm, who declined to be identified, pointed to industry consolidation this year in Tokyo — after two decades of bank mergers that left financial conglomerates with multiple asset management arms — as a potential prelude to global expansion.

On March 27, Mizuho Financial Group announced that two of its asset management companies — Mizuho Asset Management Co. and Shinko Asset Management Co. — would merge. Just over a month later, on April 30, Mitsubishi UFJ Financial Group Inc. announced that its Mitsubishi UFJ Asset Management and KOKUSAI Asset Management subsidiaries likewise would be merged.

Masako Shiono, a Tokyo-based spokeswoman for Mizuho, said her firm's consolidated money management operation eventually would push ahead with overseas acquisitions.

By contrast, a bigger number of Chinese firms could be ready to bid in large-scale money management auctions in the coming 18 months, market watchers say, including Shenzhen-based Ping An Insurance Company of China Ltd.; Beijing-based Anbang Insurance Group Co. Ltd.; and China Pacific Insurance.

Fund management companies in China eventually could join the global M&A fray, but listing their shares — in line with government efforts to promote the industry — is a necessary precondition to their being able to come to the table, said Peter Alexander, Shanghai-based managing principal with Z-Ben Advisors, a consulting firm on financial industry business opportunities in China.