China firm unlikely vanguard for public managers in Asia

China Cinda Asset Management Co. Ltd.'s high-profile December listing in Hong Kong will remain a footnote in the emergence of a publicly traded money management segment in Asia if the firm can't build on its “bad bank” origins to become a respected third-party manager.

The successful $2.5 billion listing by the first of four firms China's government set up to cleanse bad debts from bank balance sheets following Asia's 1997-1998 financial crisis will encourage similar entities in the region to come to market.

China Cinda's 39% gain since its Dec. 12 listing, after its shares were priced at the HK$3.58 (US$0.46) top of the prospective range announced by the firm's bankers, should set the stage for listings by other government-owned firms this year, such as China Huarong Asset Management Co. Ltd., and Bangkok Commercial Asset Management Co. Ltd. in 2014, bankers say.

In a region that has yet to spawn big, public pure-play money managers — such as BlackRock Inc., with its $54 billion market capitalization, and Franklin Resources Inc., at $36 billion in the U.S. — the listings of such government-launched firms will give Asia's fledgling publicly traded money management segment a profile distinct from those in the U.S. or the U.K.

China Cinda's business model, based on proprietary investing, “is very different compared to any of the listed U.S. or U.K. managers, including distressed specialists like Oaktree” Capital Management LP, noted Karamvir Gosal, founder and managing member of Valores Capital Partners LLC, a boutique merchant bank with offices in New York and Mumbai, focused on the money management industry.

China Cinda's prospectus, filed on Nov. 25, showed the company's assets, since it became a joint stock company in 2010, jumping to 283.6 billion renminbi ($46.9 billion) as of June 30, 2013, from 150.7 billion renminbi as of Dec. 31, 2010.

Over that period, the firm's borrowings from banks to help fund its acquisitions of bad debts surged to 104.1 billion renminbi from 7.8 billion renminbi.

As balance sheet investors, firms with “bad bank” business models — along the lines of the U.S.' Resolution Trust Corp. — should trade on a multiple of book value, rather than on the multiple of profits more appropriate to a manager of third-party assets, Mr. Gosal said.

China Cinda's third-party business remains a small fraction of its broader operations. Its income derived from providing “diverse asset management services” to retail, high-net-worth and institutional clients came to 544 million renminbi for the first half of 2013 and 924 million renminbi for 2012, 3% and 2.9% respectively of its total income for those periods, according to the firm's prospectus.

For the moment, the argument that China Cinda could profit from a slowdown in economic growth that would boost distressed asset totals for the country's banks and corporations is providing a tailwind for the firm's newly listed stock, noted one New York-based investment banker, who declined to be named.

Longer term, however, the challenge for firms such as China Cinda and Bangkok Commercial Asset Management “is to be able to make a business case that they can manage other people's money, do this effectively, and diversify into holding a broader range of asset classes,” said a Hong Kong-based investment banker familiar with China Cinda's listing, who declined to be named.

In its prospectus, China Cinda explicitly set that goal, pledging to spend “more effort on developing third-party asset management businesses ... in order to further optimize the revenue and profit structure” in pursuit of sustainable growth.

For now, a smattering of money management boutiques account for the bulk of Asia's publicly listed asset management sector, including:

nValue Partners Group Ltd., a Hong Kong-listed manager of long-only strategies and hedge funds with roughly US$9 billion in assets under management and a market capitalization of US$1.3 billion;

nSPARX Group Co. Ltd., a Tokyo-listed manager of long-only strategies and hedge funds with roughly $6.7 billion in AUM and market cap of $590 million; and

nPlatinum Asset Management Ltd., a Sydney-listed international equity manager with more than US$18 billion in AUM and a market cap of roughly US$3.6 billion.

However, at least one relatively big local manager — Tokyo-based Nikko Asset Management Co. Ltd., with $163 billion in AUM as of Sept. 30 — appears poised to join their ranks.

When Charles Beazley, the firm's chairman, president and CEO, announced in June that former Nomura Holdings executive Takumi Shibata would assume the chairman's title, he explained the move as essential for a company “that intends to IPO and needs to meet the scrutiny of the international markets.”

In a telephone interview, Nikko's Tokyo-based spokeswoman, Kyoko Wada, said she had no further details to add at this point.

Even with that prospect, a number of industry veterans see little chance that Asia's pool of publicly listed asset managers is going to become appreciably deeper in the near future.

In a telephone interview, Manraj S. Sekhon, CEO and chief investment officer of Singapore-based Fullerton Fund Management Co. Ltd., wouldn't rule out the possibility his firm - which oversees AUM of roughly US$10 billion — would consider a listing at some point, but he expressed skepticism investors will find pure-play asset managers of size listing in Asia anytime soon.

For the emergence of the kind of listed money manager segment one finds in the U.S., firms here would have to see “a big enough market, a big enough opportunity” to want to be a pure-play asset manager, noted Mr. Sekhon. Instead, big banks and insurance companies look set to dominate asset gathering in the region for now, giving money managers an incentive to remain part of those larger financial conglomerates, he said.

That prospect might explain China Cinda's 15-year evolution from a bank cleanup arm to a publicly listed company well on its way to becoming a financial conglomerate in its own right, replete with fledgling insurance, brokerage and trust affiliates.

Even so, some investment bankers still anticipate ripple effects from the attention China Cinda's success has garnered.

China Cinda's listing could leave independent asset managers in Asia focusing more on their own path to an IPO, even if traditional asset management remains a fraction of CINDA's business, said the Hong Kong-based investment banker.

The fallout might not be immediate, but the emergence of a broader, publicly traded asset manager segment in Asian markets could begin to pick up speed within three years or so, he predicted.