Investment management encompasses firms engaged in portfolio management, investment advice, open-ended investment funds, trusts, and all other financial investment activities including hedge funds.

 APAC has clocked almost USD 27bn from 137 deals since the start of the year, up 70% in value and marking a 24.5% year-on-year rise in the number of transactions. The region’s total is almost three times the value recorded in EMEA and more than four times that of the Americas.

China has been the largest contributor with a record 50 deals for USD 9.5bn, a sixfold increase in value and double the number of transactions compared with the same period a year ago.

The Middle Kingdom has accounted for six out of the top 10 investment management deals in APAC this year. Among them, the three largest transactions that each exceeded USD 1bn.

Changing of the guard

Beijing’s reform of state-owned enterprises (SOEs) is playing a key role in fueling M&A in investment management. The Chinese government is pursuing a market-oriented strategy to avoid repeating the mistakes that hindered the former Soviet economy in the 1990s.

Hasty privatizations in Russia led to state assets being snapped up cheaply by oligarchs rather than changing hands for their true market worth, and the Chinese government has learned from Moscow’s mistakes.

In China, the state is not leaving the economic stage, but changing the nature of its presence – SOE governance is being reformed, with business-minded managers replacing bureaucrats. Ownership structures are also being diversified with the involvement of private players.

In many companies, the state is leaving capital invested in order to guarantee that China’s economic strategy will not be compromised.

Government guides market’s ‘invisible hand’

The Chinese government’s hand also shows up in several investment management deals unrelated to the SOE reform – with a light touch.

Many targets appear to be oriented towards channeling capital into funds in areas prioritized by the government as strategic. These include medicine, biotechnology, smart agriculture, traditional manufacturing upgrades, urban renewal and micro-loans for SMEs. By contrast, funds are steered away from sectors where Chinese regulators see a “disorderly expansion of capital”, such as internet platforms.

Against a backdrop of rising geopolitical tension, only three deals out of 50 have involved buyers not from mainland China:

• The USD 904m sale of a 13.9% stake in China Asset Management Co Ltd to Canada’s IGM Financial Inc and Mackenzie Financial Corp from Power Corp of Canada.
• The sale of a 22% holding in BioEngine Capital Holding Ltd to Taiwan’s Center Laboratories Inc for USD 30.15m.
• The sale of a 50% stake in Jianxin Yingshi Private Fund Management (Beijing) to Singapore’s Principal Global Investors for USD 7.8m.

Private functions

The uptick in transaction volumes has also been driven by booming demand from the private-equity secondary market since last year, says an industry insider. A record numbers of funds were set up in 2014 and 2015, and many of them are now close to exiting their investments.

The secondary market provides much needed liquidity for funds in light of declining valuations, delayed exits and challenging fundraising conditions.

Planning ahead

Brisk dealmaking in mainland China among investment management firms is expected to continue in the near future. Activity will be affected by further developments in regulation and macroeconomic management.

The country’s top auditor is reportedly conducting a review of China’s USD 3trn trust industry, which could lead to the overhaul of a key shadow banking sector threatened by rising losses on property loans.

In addition, venture capital firms and industrial funds will remain under pressure to consolidate in light of a tech crackdown in recent years and COVID‑19 related restrictions slowing the economy.