Hitching a ride on the wealth IPO train from the East
The successful listing of China’s Noah Holdings on the New York Stock Exchange is an example of the potential for private equity to access the Asian growth story by buying into the wealth management market, writes Stephen Wall
When Chinese wealth management firm Noah Holdings listed on the New York Stock Exchange last month (and in the process raised $101m) the press was obsessed about how five of the 10 best performing US initial public offerings (IPOs) in 2010 have been Chinese companies.
Far more interesting though to Scorpio Partnership is the firm’s phenomenal growth since its founding in 2005, and its backing by US private equity firm Sequoia Capital.
Impressive figures
Across relationship managers, branches, clients and assets under management the metrics have shot up year-on-year for the wealth group’s five years in operation.
By the end of June 2010, the firm reported that six month net revenue more than doubled to $13.7m, while profits jumped five-fold to $4.04m.
While Noah Wealth is now present in the Chinese regions with the highest high net worth individual (HNW) concentrations including the Yangtze Delta, the Pearl River Delta and the Bohai Rim, it estimates that it still only reaches 2.5 per cent of China’s HNW population.
To put this in perspective let us recap on the market size. According to our data, China has 475,000 HNW individuals with assets in excess of $1m and, according to Noah, the economy creates more than 70 millionaires every single day.
No wonder then that investors in the US went crazy for the listing on day one, pushing Noah’s value up by 33 per cent, and generating a handsome return for Sequoia Capital which paid $3.9m in 2007 for a 20 per cent stake in the business.
Picking the winners
The case of Noah, while interesting in itself as a model for tapping onshore Chinese wealth, is therefore a clear indication of the return on investment available to private equity investors willing to back the right horse.
To date private equity has been slow to buy into the wealth management market, in established and emerging markets, with the only European deal that springs to mind being RHJ International’s acquisition of Kleinwort Benson earlier this year.
Clearly there is scope for many more such deals. But acquisitions will have to be carefully assessed, and show definite growth potential or the wealth management field will be littered with the carcasses of private equity acquisitions.
Stephen Wall is a director at wealth management think-tank Scorpio Partnership
