China has granted Aberdeen Asset Management (‘Aberdeen’), the UK-based asset manager, a Wholly Foreign-Owned Enterprise (WFOE) business licence. The announcement comes as UK Chancellor of the Exchequer, George Osborne, leads a trade delegation to China.
The licence, issued to a newly-created Aberdeen subsidiary by the Shanghai Administration for Industry & Commerce, Pilot Free Trade Zone Branch, will enable the company to set up an office there under the pilot Free Trade Zone.
Aberdeen has long wanted to expand its activities in China. The chief constraints have been access, control and manpower. The company has taken a gradual approach, having opened a representative office in 2007. That office has mainly performed liaison work.
Under the new venture, the plan is to add analysts to research local equities and business development staff. At present, Aberdeen does such research mainly from Hong Kong, preferring to do this in-house, and this will continue.
In the first stage asset-raising will focus on local institutions. The WFOE is based in the Free Trade Zone which brings further advantages.
Aberdeen stresses the importance of patience, however. It is not seeking quick returns but looking to build its presence step by step, mindful that, while liberalisation is good for the industry, opportunities are evolving fast.
That view is informed by the raft of new investment initiatives, which have included the likes of ‘Stock Connect’, the Hong Kong-China mutual recognition scheme for funds as well as the WFOE regime itself.
For some months, Aberdeen had warned investors that the local stock market was overvalued and struck a cautious note on the slow pace of SOE reforms. It has also voiced nervousness over the quality of some bond issuance.
The company thus regards China as much a market for inbound foreign investors looking to participate in the country’s rapid growth as one for domestic investors intent on diversifying internationally – and says they should be treated the same.
Hugh Young, Managing Director of Aberdeen’s Asian business said, “While we welcome China’s steady market opening and we’re thrilled to gain our WFOE licence, we will proceed slowly. It’s important to maintain our investment disciplines and assess opportunities carefully. While the asset management industry there is young and the potential huge, our vow is to avoid short termism and focus on quality.”
Martin Gilbert, Chief Executive Officer of Aberdeen Asset Management, added "UK business cannot ignore the structural development of China. It is already the second largest economy in the world and will sooner or later surpass the US. The work undertaken to obtain a WFOE licence is part of our overall strategy to ensure Aberdeen Asset Management is well placed over the next 10 to 20 years."
