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HNA sees Value in connecting East and West
May 23, 2017 / 9:16 AM / 6 months ago

HNA sees Value in connecting East and West

HONG KONG (Reuters Breakingviews) - HNA Group has alighted on a logical, if pricey, target in Hong Kong. The deal-hungry Chinese travel conglomerate known for overpaying wants to invest in Value Partners, one of Asia’s few sizeable independent asset managers, says Bloomberg. If HNA wants to connect Chinese investors with the wider world, this could be useful.

People board a plane of HNA Group in Qingdao, Shandong province, China, October 17, 2016. Picture taken October 17, 2016. REUTERS/Stringer

The report on Monday prompted an 8 percent-plus rally in Value Partners stock, before it halted trading. After-hours, the company said Chairman Cheah Cheng Hye and co-founder Yeh V-Nee had been in talks since January about selling a stake, without naming the suitor. A deal would underscore HNA’s enormous financial ambitions - this year alone it has invested in U.S. and Austrian asset managers, agreed to buy an American fund-of-funds business, and even snapped up 10 percent of Deutsche Bank.

A market value of $1.9 billion is eye-catching – at nearly 13 percent of assets under management, which stood at $15 billion at end-April. Western asset managers usually trade at fractions of this. But market quirks partly explain the difference.

Hong Kong has been relatively sheltered from the rise of passive investing, which has undercut traditional money managers and driven down fees in the West. The city still boasts plenty of individual investors who trade frequently and are not too bothered by the costs. And, so, Value Partners can charge high, hedge-fund-style performance fees.

Even allowing for that, though, the company looks expensive, on over 19 times forward earnings. That is above its own long-term average and the roughly 15 times earnings multiple of the MSCI ACWI Capital Markets index, Datastream shows. If this should turn into a full takeover, it will also be crucial to pay up to keep the target’s senior team in place – as ever in this industry.

Still, an investment here is easier to rationalise than, say, a stake in Deutsche. Sooner or later, Chinese money, trapped on the mainland, will be allowed to rush out into foreign investments. And Value Partners should be well placed to mop up. It already sells cross-border funds to institutions and rich individuals in the People’s Republic, and it is applying for permission to cater to retail investors too. If HNA rides that wave, Value could have value.

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