Price trying to buy stake in China funds giant, reports say

Money manager mum but reported in 'advanced talks'

  • In an interview with The Baltimore Sun last month, Price Chief Executive James A.C. Kennedy brought up his company's relationship with China Asset Management when asked about foreign acquisitions.
In an interview with The Baltimore Sun last month, Price Chief… (Baltimore Sun photo by Jed…)
March 16, 2010|By By Jamie Smith Hopkins | The Baltimore Sun

Baltimore money manager T. Rowe Price Group is reportedly trying to buy a stake in the largest mutual-fund house in China, which would broaden its reach in a country that boasts one of the world's fastest-growing economies and one-fifth of the globe's population.

Price is in "advanced talks" to purchase part of China Asset Management Co. in a deal that could be worth upward of $1 billion, according to news reports on Monday. The Chinese firm's parent company has to sell some of its holdings to comply with regulatory demands, and Price has already established a relationship with the players as an adviser to the firm during the past three years.

Price declined to comment, saying it does not discuss "market rumors." But in an interview with The Baltimore Sun last month, Price Chief Executive James A.C. Kennedy brought up his company's relationship with China Asset Management when asked about foreign acquisitions.

"We manage some money for them," he said. "Might that turn into an economic interest? We don't know."

The potential size of a deal is unclear, though it could be substantial. By law, one firm cannot own more than 49 percent of a Chinese fund manager, so China Asset Management's parent, CITIC Securities International Co. Ltd., which owns the entire firm, is being pressed by regulators to decrease its holdings. According to Reuters, which first reported the talks, a deal could be worth more than $1.3 billion.

But CITIC could sell smaller stakes to several companies. Or it might try to get around the ownership restrictions via joint venture with a foreign firm for the 51 percent stake, giving the outside investor control of 25 percent, financial publications have speculated.

The Chinese and Maryland economies already see two-way traffic.

A dozen Chinese companies have established headquarters in the state, mostly in the past few years, said Bradley Gillenwater, Asia regional manager with the state Department of Business and Economic Development's Office of International Investment and Trade.

A dozen Maryland firms have launched sales operations in China through the department's incubator office there, which lets employers establish a cheaper foothold, Gillenwater said. Other companies doing business in the country include Bethesda-based Marriott International Inc., which has about four dozen hotels and other properties there.

Price made its first foray into China in 2006, when it won the right to invest some of the country's $28.5 billion social-security fund. It was one of 10 foreign companies selected from the scores vying for the job, and it still manages a piece of the fund.

If the company buys part of China Asset Management, it will be following in the footsteps of financial powerhouses. Morgan Stanley formed a partnership with China Construction Bank Corp. in 1995, a stake it's now selling - reportedly for $1 billion. Others bought into Chinese companies in the past decade as restrictions on foreign ownership eased, a change that came with China's entry into the World Trade Organization in 2001.

"Foreign firms have gradually been entering the [Chinese] market," said Nicholas Lardy, senior fellow at the Peterson Institute for International Economics. "Typically the form of entry requires a joint venture."

That ownership structure reduces a foreign company's control over how the Chinese firm is run - that's the downside. But the appeal is simple math. China is the world's most populous country, with 1.3 billion people. Its economy is booming - last year's growth was nearly 9 percent - even as the United States and many other countries struggle with deep downturns. And Chinese citizens are savers the way that Americans are spenders, which means great possibilities for a company that invests people's cash.

"It's potentially a very large market," Lardy said. "There are a lot of households out there looking for places to put their assets. I would say it's an underserved market, but that's primarily because the regulators have structured the system so a lot of this money pours into bank deposits."

It makes sense that Price would be interested in China Asset Management, said Harry Milling, a mutual-fund analyst at Morningstar Inc., an investment research firm. "They already know them," he said.

"Globalization is a key priority for them," Milling said. "That said, T. Rowe tends to move slowly. They're very deliberate. ... They're going to take equity interests here and there. So if this move does occur in China, it would be along those lines."

A one-quarter ownership interest would be more in keeping with the way Price does business. A billion-dollar deal just isn't its style, Milling said.

Price's largest acquisition - $783 million in 2000 - was buying out a British partner in a joint venture investment firm now known as T. Rowe Price International.

Its second-biggest deal closed in January, when it acquired 26 percent of India's oldest mutual-fund firm, UTI Asset Management Co. Ltd., for $142 million.

Price said in its annual report last month that "we may consider non-controlling minority investments in other entities."

Price had $743 million in cash at the end of last year, $124 million more than a year earlier, giving it money for acquisitions.

"They've got a great balance sheet," Morningstar's Milling said.

Baltimore Sun reporter Gus G. Sentementes contributed to this article.

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