BNP Paribas Investment Partners has expanded its Asian business significantly since the integration of Fortis Investments. Stewart Edgar
, CEO Asia Pacific, explains the background and the Asian business strategy.
The financial crisis
served to shake the family tree of asset management joint venture relationship in China. Branches became tangled and roots became twisted as the ownership of European fund managers changed hands as a result of deals between their parent banks.
BNP Paribas Investment Partners, the asset manager owned by the French bank BNP Paribas, set up a joint venture in China in 2004 only to find itself in 2010 involved in three Chinese joint ventures as a result of the financial turmoil in, mainly, European and North American markets.
Chinese law allows foreign asset managers to have only one joint venture. BNP Paribas Investment Partners held its legacy manager, Shanghai-based SYWG BNP Paribas Asset Management, and after its parent bank completed the purchase of Benelux’s Fortis Bank in 2009 (which itself had purchased part of ABN AMRO two years earlier) BNP Paribas Investment Partners inherited both Fortis’ and ABN AMRO’s asset management joint ventures too.
The authorities were patient and BNP Paribas Investment Partners decided to keep Fortis Haitong Investment Management and sell its stakes in the others.
The Fortis-descended business is now called HFT Investment Management.
The roots of this joint venture go back to earlier than BNP Paribas Investment Partners’ own relationship, to 2003 when Stewart Edgar was head of Asia for Fortis Investments.
Edgar, who is now Asia Pacific CEO for BNP Paribas Investment Partners, recalls: “Fortis decided to launch a business in China before China entered the WTO. We were one of the first investment managers to do that - in fact we were one of the first four investment managers to establish a joint venture in China.
“At that time there was virtually no other foreign manager operating on the mainland, which meant we were not late into the market. It also meant that it didn’t matter that we did not have a recognisable brand, because nobody else in China at that time had one neither.”
The right four markets
The broader merger of BNP Paribas Investment Partners and Fortis Investments across all of Asia delivered a business with over €60bn in assets under management (as at 31 January 2010) and 200 investment professionals.
With China looked after, the deal also strengthened legacy businesses in India, Indonesia and Korea. Fortis had built out businesses in India and Indonesia, while BNP Paribas Investment Partners had built a joint venture in Korea.
“Those four countries are the most important ones to get right in this region. They are big enough already, and they have enough growth still left in them.”
Additionally, the ABN AMRO acquisition had also yielded a distribution footprint in Taiwan and in Hong Kong.
“We ended up in all four markets that we wanted to be in and with a distribution footprint across rest of the region,” says Edgar. “We have gone from being a niche player, to a pan-Asian player.”
In the four main markets, BNP Paribas Investment Partners has a strategy to build three types of business. Edgar calls them ‘local for local’, ‘local for global’, and ‘global for local’.
‘Local for local’ centres on providing local investors with funds and mandates invested locally. ‘Local for global’ implies accessing the local Asian markets for foreign investors, such as through the ‘qualified foreign institutional investor’ – or QFII – scheme in China.
“Local for local in China is doing very well and as far as QFII – or ‘local for global’ - is concerned, our quota is totally used up.”
The ‘global for local’ strategy aims to deliver the firm’s reach into global markets to local investors in Asia.
“As these markets open up we will be more able to implement this. In Indonesia, the global-for-local concept isn’t there yet, but it will come.”
For Edgar, Australia and Japan, despite being large, are “second-tier” markets. “There is less growth in those markets, but obviously there is a lot of money already there and we want to grow our market share. Australia and Japan tend to be more institutional, therefore the ‘global for local’ strategy is more appropriate.”
There is a third tier too, and these are the distribution markets of Hong Kong, Singapore and Taiwan.
“They are not enormous domestic markets individually, but they are relatively sophisticated in distribution.”
More investment centres
The BNP Paribas-Fortis acquisition saw BNP Paribas Investment Partners become the fifth largest European manager and the 13th largest manager in the world.
But how did it change things in Asia? Edgar says BNP Paribas Investment Partners is the 7th largest top foreign fund manager in Asia excluding Japan/Australia.
Another result of the merger is that BNP Paribas Investment Partners now has more investment centres in Asia. Before it was just a distribution business, but now the Asian operation has investment centres in Australia, Japan, Korea, Taiwan, Singapore, Hong Kong, China, Indonesia, India and Malaysia.
“Having people on the ground is key, particularly in the emerging markets. You need to be really close to understand what’s going on and to add value,” says Edgar. “We are also bringing in new people with regional product.”
The coming together of Fortis and BNP Paribas was a great boost to the latter. Edgar says BNP Paribas Investment Partners is still building up its brand in the region and is a relative newcomer.
It is just as well that the merger happened when it did. Edgar expects to see competition arise from more local names.
“The thing to look for over the next five years is that the joint ventures and Chinese domestic managers will not be stopping just at China. They are going beyond. It’s beginning to happen in India already.”
But he says there is an “enormous positive” from being an international house. “People want to be part of something international,” he says.
However, he acknowledges that money has flowed out of Indian equities, but although some international investors have taken money out of Indonesia, local people have put money in.
He says that as people hunt for more value, Asian convertible bonds and fixed income is growing. “People have been wanting more value so they have looked for high income and dividends that pay monthly or quarterly”.
But what about Asia’s main story, China?
“People are concerned about China. There is a property bubble and events in North Korea have an impact. Oil prices, of course, are the latest concern and the influence of food prices will be visible in the coming months. But I’m a long-term bull on China and I think there is a very good story for China this year.
“The opportunities in China will work as long as people in China are benefiting.”
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