On October 11th, Zhou Xiaoquan, the director of Shanghai’s Local Financial Regulatory Bureau, had an in-depth exchange with Lu Ming, the Global Partner and APAC Executive Chairman of American KKR Group, and Ryūtarō Saruta, the CEO of Japan’s Sumitomo Mitsui Doshu Asset Management Company. Both of these firms manage assets amounting to over a trillion globally. Two days later, Chen Jining, the Secretary of the Shanghai Municipal Party Committee, met with leaders from HSBC Holdings and Fidelity Investments.
Chen Jining highlighted that HSBC is one of the world’s foremost banks and financial institutions, and Fidelity stands as a titan in the global asset management sector. Their core businesses align seamlessly with Shanghai’s strategic urban functionalities. As the city accelerates its green, low-carbon development, as well as industrial transformation and consumption upgrades, collaboration opportunities between the entities are set to expand. He welcomed these institutions to capitalize on their specialties, play a more significant role in Shanghai’s international financial center’s construction, and intensify their investment plans in the city. The primary aim is to collectively promote green finance, tech finance, and focus on environmental, social, and governance, providing businesses with a broader range of specialized financial products and services. He assured them that Shanghai would strive to create a top-notch business environment that is market-oriented, law-based, and internationally competitive, always open to feedback from enterprises, aiding them in achieving substantial growth in Shanghai. During the meeting, Chen Jining extended an ”
olive branch” for mutual beneficial cooperation to several foreign giants.
Rapid Entry of Foreign Titans
“If one foreign entity entering China can be considered an isolated incident, the successive arrivals of renowned global giants lately signify a consensus among foreign investors seeking opportunities in the Chinese market,” He Tao (pseudonym), the head of a large asset management institution in Shanghai, told the “Huaxia Times” on October 14th.
While meeting with senior executives from HSBC Holdings and Fidelity Investments, authoritative information released by Shanghai officials conveyed Chen Jining’s commitment to maintaining a long-term, stable, and predictable development environment, providing global businesses with opportunities to deeply engage with both China and Shanghai.
“HSBC is fully confident in the growth of China and Shanghai. We will continue to amplify our investments in China, embracing the opportunities of Chinese-style modernization, deepening our operations in Shanghai, launching new products, and offering full lifecycle financial services for tech companies, thus aiding the rapid development of Shanghai’s green finance,” stated HSBC Chairman Du Jiaqi when discussing plans for the Chinese market.
On the 13th, Chairman of Fidelity International, Zhuang Ainbo, expressed his admiration for China’s rapid economic recovery. In recent years, Fidelity has made significant progress in Shanghai. He conveyed the firm’s intent to further capitalize on its strengths, introduce more sophisticated expertise and resources to Shanghai, intensify collaborations around green finance, and expand business realms to achieve mutual growth.
On October 11th, Zhou Xiaoquan emphasized during his meeting with Sumitomo Mitsui Doshu Asset Management CEO Ryūtarō Saruta that Shanghai is intensifying its efforts in building the “Five Centers”, with accelerating the construction of a global asset management center as a pivotal part. The goal is to establish a comprehensive, open asset management hub with a high concentration of resources, strong international level, and a relatively complete ecosystem.
Zhou Xiaoquan affirmed, “Shanghai has already initially established a modernized, efficient, and innovative industry system, benefiting both domestic and foreign asset management institutions. With an open attitude, we welcome renowned international institutions, including Sumitomo Mitsui Doshu, to set their strategies in Shanghai. We will continually optimize our policy support and business environment. We hope Sumitomo Mitsui Doshu will intensify their investments in China and engage more deeply in the construction of Shanghai’s global asset management center.”
What’s KKR Up To?
It’s worth noting that during the high-frequency meetings between Shanghai’s top government officials and foreign giants, senior executives from HSBC Holdings, Fidelity International, KKR Group, and Sumitomo Mitsui Doshu Asset Management all expressed their optimism and proactive strategies for the Chinese market.
As one of the world’s largest alternative asset investment firms, KKR, established in 1976, manages assets roughly amounting to 518.5 billion USD (equivalent to 37 trillion RMB). Their operations span major countries worldwide, encompassing sectors like private equity, credit, infrastructure, real estate, capital markets, and hedge funds.
This visit to Shanghai, closely engaging with government officials, signifies KKR’s intention to proactively establish a RMB investment platform, participate in domestic market investments, and apply for the Shanghai QFLP pilot program.
Historically, KKR has been a trendsetter in the private equity circle. With this meeting, KKR’s presence in Shanghai becomes more imminent, with a myriad of foreign institutions lining up to enter the city. KKR has been highly active in China’s primary market. Over a decade ago, they established an office in Hong Kong, marking their entry into Asia. Subsequently, they launched several Asia-focused funds, even introducing a growth fund specifically targeting China. According to official data, since entering the Chinese market in 2007, KKR has invested over 7 billion USD.
“To engage more deeply in the RMB market, KKR embarked on new investments. In May 2022, KKR’s Kind Capital Private Equity Fund Management (Hainan) Co., Ltd. completed its registration with the Asset Management Association of China. Reportedly, Kind Capital was established in November 2021, fully owned by Hong Kong-based KKR Asia, with a registered capital of 5 million RMB. As a wholly foreign-owned enterprise, its business types include QDLP and other pilot institutions,” explained an investment manager from a Hong Kong private asset management institution familiar with KKR’s operations on October 13th.
This investment manager noted that Shanghai’s explicit welcome for KKR to apply for the QFLP pilot program – Qualified Foreign Limited Partner – allows foreign investors to invest in non-listed equity in China. Once the QFLP qualification is granted, foreign institutions can establish investment entities domestically, acting as general partners, and initiate RMB private equity funds, converting foreign capital into RMB to invest in China’s private equity market.
“In simpler terms, it means foreign funds investing domestically,” the investment manager elucidated.
However, an executive from an asset management institution in the Yangtze River Delta region told “Huaxia Times” that one of KKR’s primary focuses in China would undoubtedly be on the hugely potential distressed asset disposal sector.
“QFLP serves as a source of fundraising. But the market is more concerned about where the likes of KKR will invest domestically. In the Chinese market, KKR is well-regarded as an investment maestro in the distressed assets sector. In 2016, they collaborated with Oriental Asset’s subsidiaries, Oriental International and Oriental Cangshan, to establish a joint venture, co-investing in credit and distressed assets. With China’s economic growth decelerating in recent years, the supply in the domestic distressed asset market has surged, enlarging the return scope. The aggressive strategies of foreign institutions can not only alleviate the disposal challenges faced by financial institutions regarding distressed assets but also provide restructuring relief for struggling enterprises. Furthermore, a more diversified and international asset management market might be a win-win situation,” opined Liu Hui (pseudonym), the head of an asset management firm in the southern Jiangsu region.
Indeed, apart from KKR, other global investment entities like Goldman Sachs, Oaktree Capital, Bain Capital, Fortress, Farallon, and Apollo have also been intensifying their participation in China’s distressed asset market recently, with the list still expanding.
At the recently held 2023 Shanghai Global Asset Management Forum, Shanghai Deputy Mayor Xie Dong revealed that 89 and 62 internationally renowned asset management institutions have respectively participated in Shanghai’s QFLP and QDLP pilots. This list includes entities like Yitao Private Fund Management (Shanghai) led by casino magnate’s son Ho Yau Lung, Xin’an Private Fund Management (Shanghai) under SinoSure Financial Group – one of the US’s largest pension fund management entities, and Sumitomo Mitsui Doshu Private Fund Management (Shanghai) under Japan’s largest asset management institution, Sumitomo Mitsui.
A figure in Shanghai’s private equity circle remarked, judging by the current situation, the call for foreign entries has already been sounded!