IGM Financial has agreed to pay the equivalent of $468-million to buy a 10-per-cent interest in China Asset Management Co.J.P. MOCZULSKI/Reuters
IGM Financial Inc. is taking a stake in one of China's largest investment managers in a bid to tap into the Asian country's burgeoning base of savers and investors.
Mackenzie Financial Corp., IGM's subsidiary, will buy a 10-per-cent stake in China Asset Management Co. Ltd. for $468-million in a partnership that gives the Canadian asset manager access to China's developing retail and institutional-investment market. It's also a step away from Canada's intensely competitive investment market, where Mackenzie has been reorganizing its operations.
China AMC is among the pioneers in the country's asset management industry. Founded in 1998, it has a recognizable brand in its home market and is the second-largest mutual fund company with 40 million retail investors and 400 institutional clients. It was also the first to offer exchange-traded funds. Last year, China AMC earned $289-million.
Mackenzie plans to add another 3.9 per cent to its stake in the company in January through a separate deal, and could potentially buy up even more in the future.
"The asset management industry in China is extremely fast-growing," said Barry McInerney, who joined Mackenzie as chief executive officer earlier this year, after being co-CEO of BMO Asset Management where he oversaw U.S., European and Asia-Pacific operations. "There's the aging population in China and therefore the social security system, which is quite new, needs to continue to grow very fast to support the aging demographics," Mr. McInerney said. Then there's "the rise of the middle class in China, which almost rivals the entire size of the U.S. population now," he said, adding that the Chinese savings rate is more than double that of Canadians and Americans.
This increased focus on the fast-growing and evolving Chinese asset-management market comes as Mackenzie has been redeveloping its culture, investment teams, reducing costs and shaking up its fund lineup and plotting its evolution as a company.
"There's just so much more operating leverage in China right now than there would be in North America where we're more mature investors," said Jeff Carney, chief executive officer of IGM, who previously ran Mackenzie. "The whole evolution of saving for retirement is really playing out in its early days in China, compared to us where we're probably 20 to 30 years ahead of that."
Canadian asset managers focused on retail-level investors have been under pressure in recent years due to regulatory uncertainty, increased costs and heightened competition, among other things.
By contrast, China offers a longer runway of a rising middle class that is putting more money in managed investment products such as mutual and exchange-traded funds, rather than in deposits and real estate. There's also the added benefit of higher economic growth.
IGM has been building out its relationship with China AMC since 2011 when its parent company Power Corp. bought a 10-per-cent stake in the company at auction for $276-million. China AMC had just $35-billion (U.S.) in assets under management at the time. Five years later, the business has organically grown to more than $215-billion (Canadian) in assets and boasts a compound annual growth rate of 40 per cent.
"Ownership in China AMC also provides opportunities for new product development and cross-selling," Tom MacKinnon, an analyst with BMO Nesbitt Burns Inc., wrote in a note to clients.
"Mackenzie was recently awarded a relative return global fixed income mandate through China AMC's platform and we expect Mackenzie to develop other synergies to expand retail and institutional businesses in both markets," he later added.
CITIC Securities Co., which is China's biggest publicly traded brokerage, is the largest shareholder in China AMC. Other state-owned enterprises also have positions in the company.
Mr. Carney said IGM would be interested in further increasing its stake in China AMC in the future and plans to open an office in Beijing next year in order to build its presence and operations in the region. He noted that China AMC also has its own ambitions to grow its business internationally.
"We're really diversifying from Canada's sort of smaller size of population and crowded space and getting into a larger economy with very diversified economics," Mr. Carney said.