Small is beautiful for BlackRock in China
By Alec Macfarlane
(The author is a Breakingviews columnist.)
HONG KONG, April 16 ( Breakingviews) - Small is beautiful for big money managers in China. Beijing is allowing foreigners to take control of mainland firms for the first time, but the promise of this $3.7 trillion market means few are likely to sell. China International Capital Corp is probably an exception. Its fund arm is tiny, but it has licences that BlackRock prizes. If the U.S. fund giant acquires the outfit, similar deals should follow.
But with the industry going gangbusters, why sell? It's a nascent market where only 15 asset managers have gone public, Dealogic reckons, let alone engaged in deal-making. Private titans like Harvest are more likely to tap public markets for capital to exploit the market's growth than sell to a foreigner. It's also unclear why many joint venture partners would sell, especially those tied to banks with big retail distribution channels to pump products through. That may explain why BlackRock is looking beyond its JV with Bank of China , .
All of this makes it hard for boss Larry Fink to do a China version of its blockbuster acquisitions of Barclays Global Investors and Merrill Lynch Investment Managers. Yet he could still do some useful fishing in the shallow end of the pond, where small local players might be ready to nibble.
CICC Fund Management fits the bill nicely. Launched in 2014, it manages only $3 billion, a fraction of a percent of BlackRock's nearly $6 trillion in assets, but it's fully licenced and isn't attached to a retail bank. Fink has to persuade only one shareholder, CICC. The bank has a management stock option plan, and executives approaching retirement may be keen to sell. If he succeeds with a deal, expect BlackRock's rivals to pursue Chinese firms with similar characteristics.
- BlackRock is attempting to take control of a Chinese asset manager, the Financial Times reported on April 8, citing people close to the situation.
- The world's biggest money manager has held talks with CICC Fund Management, a subsidiary of investment bank China International Capital Corp, about buying a majority stake in the investment unit, the FT reported. It has also held talks with a handful of other Chinese groups, the newspaper added.
- Asia is expected to drive 50 percent of the organic growth in the fund industry's assets under management over the next five years, BlackRock Chairman Larry Fink said in an annual letter to shareholders published on April 8. This will be led largely by China, where there is increasing demand for more diversified and long-term investment products. "Our goal is to become one of the country's leading global asset managers," he added.
Larry Fink says BlackRock aims to control a Chinese asset manager (graphic).