The joint venture was established with Chinese partner Huaxin Securities in 2008. Morgan Stanley currently holds a 34% stake while Huaxin owns 36%.
On 13 April, the firm applied to China’s securities regulator to increase its stake to that of a majority shareholder, according to the records of China Securities Regulatory Commission (CSRC). The application is still being processed although the regulator stated the filing processing for each request takes only 60 days.
Increasing its stake in the joint venture is part of Morgan Stanley’s bigger plan to tap China’s opening of its financial industry, James Gorman, chairman and CEO of the New York-based investment bank, told mainland media last week.
Gorman said a minority shareholder in a financial institution has to take a passive role in implementing the strategy. He believes a wider presence of foreign institutions will not diminish the competitiveness of local firms but it could strengthen the entire market, according to local media.
FSA sought more information from Morgan Stanley IM, but the firm did not respond in time for publication.
Additionally, Gorman expressed interest in his firm owning a majority stake in another joint venture with Huaxin, a securities-related operation. He aims to ultimately reach 100% ownership over the next few years as allowed by the new regulations.
Relaxed ownership rules
A number of asset management giants have already set up joint venture firms in China. Of the 50 largest global asset managers, 22 have joint ventures. Nine of them, including Allianz GI, JP Morgan AM, BNP Paribas AM and UBS AM, have the maximum ownership stake of 49%.
In April, China’s securities regulator relaxed joint venture ownership limits for foreign players, including asset managers and securities firms. Foreign players may now apply for a majority 51% ownership in a Chinese joint venture and increase to 100% over the next three years.
Although the new regulations present new opportunities for foreign players, big challenges remain. Charles Lin, Vanguard’s Hong Kong-based country head of China, told FSA in a previous interview that there is a strong home bias in the China market. When entering the retail fund market, foreign fund managers need to find an effective way to compete against the investment capabilities, product offerings and brand recognition of domestic managers, Lin noted.
In addition, JP Morgan Asset Management is another foreign fund manager that has expressed a desire to own a majority stake in its asset management JV. Other firms that have submitted an application to the CSRC to hold a majority stake in a securities company are UBS and Nomura Holdings.
