Update: Russell Investment Exits Joint Venture With China’s Ping An

By Pete Sweeney and | May 19, 2015

Russell Investment Management and China’s Ping An Insurance Group said they have terminated their investment joint venture after four years, the latest sign of friction between foreign fund managers and their Chinese partners.

The joint venture, launched in March 2011, was managing $1.7 billion of investments on behalf of Chinese and foreign clients as of March 2015, according to information on the venture’s website and its LinkedIn profile.

Statements from the companies on Wednesday confirmed an earlier Reuters report of the breakup. Sources told Reuters that the relationship ended due to differences over investment strategy and risk culture.

“Going forward, Russell Investments and Ping An Group have mutually agreed to change the ownership structure of their joint venture company Ping An Russell Investment Management Shanghai Ltd,” Steve Claiborne, who handles public relations for Russell Investments in Seattle, wrote in an email to Reuters.

“Specifically, the Ping An Group has purchased Russell Investments’ 49 percent ownership share in the joint venture.”

Ping An Group’s public relations office confirmed the end of the joint venture but declined to comment further.

No information was given on the financial details of the share sale.

A source with knowledge of the situation said Russell was “quietly pulling out” of the partnership because it felt it had benefited Ping An more than Russell.

The U.S. asset manager said it will continue to do business in China via a wholly owned local entity, and will continue to work with domestic partners.

A source who had business dealings with both Ping An and Russell said the two partners diverged in their investment philosophy and business culture.

“Simply put, Ping An cares only about results, but Russell focuses very much on the procedure,” said the source, who declined to be identified because of relationships with both companies.

“Their understanding of risk control is also very different. Russell has a mature and strict procedure to deal with risk, but Ping An is relatively short-sighted. It’s time for them to divorce.”

A number of financial services companies have exited their Chinese join ventures, and industry insiders predict more divorces to come.

In October, Bank of New York Mellon, one of the largest U.S. wealth managers, won regulatory approval to sell its stake in a joint venture with China’s Western Securities.

State Street Global Advisors is also looking to sell its 49 percent stake in its mainland joint venture with Zhongrong International, according to news reports from last year.

Shakeout

Foreign fund managers have been rattled by their domestic partners increased dabbling in shadow banking and complex structured investment products, leading to fears of liability in cases of default.

China’s slowing economy and rapidly changing investment environment – including increasingly easy direct access to Chinese assets – have also changed the equation for foreign institutional investors.

Meanwhile Chinese regulators appear to have become more open-minded to letting foreign funds exit partnerships that made no business sense to strike out alone.

Last June, the China Securities Regulatory Commission said Beijing plans to allow foreign companies to acquire majority shareholdings in onshore fund managers, although it did not provide a timetable.

“How much strategic importance people are attaching to the JV platform is in question. More and more foreign companies are preferring wholly owned platforms,” said Howhow Zhang, director at fund research firm Z-Ben Advisors in Shanghai. ($1 = 6.2044 Chinese yuan renminbi) (Additional reporting by Samuel Shen; editing by Lisa Jucca).

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