State Street Teams Up with Hong Kong Firm for China Investing

State Street Corp. has linked up with a Hong Kong-based asset manager to give its institutional customers a way to invest in Chinese companies.

Boston-based State Street, which manages $300 billion of assets worldwide, announced the joint venture with Mansion House Group Ltd. Tuesday. Terms of the deal were not disclosed.

State Street Mansion House Investment Management Services Ltd. will invest in Chinese companies on behalf of State Street's institutional investors from North America and Europe.

A range of possible investment vehicles, including managed funds and separate accounts, is being explored, State Street spokesman Paul Scofield said. State Street manages $10.5 billion of assets in emerging markets.

"One needs to be prepared to participate in this market as it opens," said Nicholas A. Lopardo, chairman of State Street Global Advisors. "When the market begins to open and the Beijing government decides it would like to create a mutual fund environment, one is not going to be able to participate unless one starts now."

Citicorp launched a similar Hong Kong-based joint venture two years ago that has $130 million invested in unlisted companies that are either based in China or have their primary business there. The Citicorp Everbright Fund is owned by Citi, China Everbright Group, and several foreign government investment arms, as well as by a German investment bank and an American insurance company.

Rather than homing in on one country, J.P. Morgan & Co. offers investments in Chinese equities through broader emerging market accounts, including one for the Asian market.

"We don't have China-only accounts," said Satch Mehta, a vice president in emerging markets at Morgan. He added that the company is diversifying risks by broadening its investments to the entire Pacific Rim.

Other U.S. banking companies limit their business in China to capital- raising by issuing debt such as commercial paper for companies in textiles, transportation, and shipping.

Awaiting Hong Kong's return to Chinese sovereignty next Tuesday, Mr. Lopardo spoke in a telephone interview Wednesday from a Hong Kong hotel overlooking the amphitheater built for the ceremony transferring power.

"In a market like China, it's very difficult to enter without appropriate relationships," he said. "Mansion House is an established, recognized entity in Hong Kong with very good relationships in mainland China."

Mr. Lopardo is chairman of the joint venture, and Mansion House chairman Evans C. Lowe is vice chairman.

Mansion House has a stock brokerage, an asset management division, and direct investments in China. It had revenues of $8 million and net earnings of $1 million in 1996.

A consultant who advises money managers said it is important to make inroads in China now.

"Partnering with someone local-that's a preemptive move against anyone else," said Douglas Trott, president of Taddingstone Consulting Group, Toronto.

This year, State Street Global has also set up a joint venture with an investment firm in Prague, Emerging Europe Asset Management, to offer institutional clients private placements.

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