Warburg taps China wealth management market

The New York-based firm is set acquire a minority stake in Shanghai-based wealth management firm Fortune SG from French bank Société Générale.

Global private equity firm Warburg Pincus is tapping into the Chinese wealth management sector after agreeing to acquire a 49 percent stake in Fortune SG Fund Management, a Shanghai-based asset management company jointly set up by French bank Société Générale and Shanghai Baosteel Group.

Financial details of the transaction were not disclosed.

Fortune SG manages more than 20 public funds including actively managed equity, bond and balanced funds, money market funds, index funds, exchange-traded funds and Qualified Domestic Institutional Investor funds. The firm has public equity assets totalling 122.5 billion yuan ($18 billion; €15 billion) as of end-June 2017.

Fortune SG was established in 2003 as a joint venture between the French bank, which held a 49 percent stake, and state-owned steel maker Baosteel Group which will continue to own the remaining 51 percent.

The firm’s strategic investment in Fortune SG marks a significant move for Warburg Pincus into China’s asset management industry, managing director Ben Zhou said in a statement.

“With the rapid growth of the Chinese economy and accumulation of family wealth in the past 30 years, people have become increasingly aware of the importance of wealth management and asset allocation. We are strong believers in the long-term prospects of China’s asset management industry and public fund management industry,” he said.

China has recently tightened rules on its $7.5 trillion asset management industry, developing a tougher regulatory framework aimed at lowering risk. The proposed rules include standardising leverage ratio limits and requiring financial institutions to put aside risk reserve funds equal to 10 percent of product management fees, among other requirements.

Financial services is one of the five focus sectors of Warburg, along with energy, healthcare and consumer, industrial and business services, and technology media and telecommunications.

The firm is in the process of deploying its 2016-vintage $2 billion China-focused fund and its 2015-vintage $13.4 billion global private equity fund Warburg Pincus XII.

Warburg received regulatory approval for the deal from the China Securities Regulatory Commission on Wednesday and the transaction is expected to close in the third quarter of 2017.