Franklin Joins Vietnam Private Equity Deal
February 25, 2008
Franklin Resources of San Mateo, Calif., has agreed to acquire a 49% majority stake in Vietcombank Fund Management, the Hanoi, Vietnam-based private equity investment division of Vietcombank. Franklin, parent of Franklin Templeton, currently manages more than $605 billion.
Vietcombank was established in 1963 as a state-owned commercial bank and is still under communist rule and is the oldest bank for external affairs in Vietnam. Vietcombank will retain its 51% interest in the investment management subsidiary.
The partnership gives Franklin Templeton a presence in a country with an estimated 83 million people, three-quarters of whom are between the ages of 15 and 64. The so-called S-shaped Southeast Asian developing country has a literacy rate of greater than 90%. According to the U.S. Department of State, Vietnam is a mainly agricultural-based country in the process of migrating from a centrally planned economy to one that is market-based.
The joint venture gives Franklin Templeton the opportunity to gain a local presence in the Vietnamese market, whose workforce is comprised of professionals familiar with the country's particular customs and ways. Right now, only 9% of the firm's worldwide assets under management are from investors in the Asian continent.
"As more middle-class affluence comes online in countries where disciplined savers are eager to become investors, Franklin Templeton wants to be a provider of choice with its broad spectrum of investment solutions," Greg Johnson, president and CEO of Franklin Resources said in making the joint venture announcement. The arrangement gives Franklin access to the growing population of Vietnamese investors, whose incomes are rising and most of who have not been widely exposed to mutual funds, or any other investment vehicle, for that matter.
Franklin's brands include the Franklin, Franklin Templeton, Templeton fund complex lineups of mostly international, as well as funds in the Mutual Series fund family which Franklin acquired in November 1996 when it bought Heine Securities Corp.
As part of the joint venture deal, the two co-CEOs of Templeton Asset Management Ltd. were named as members of Vietcombank Fund Management's board of directors: Dennis Lim, who also serves as a portfolio manager, and Mark Browning who also serves ad a managing director in Asia for Franklin Templeton International.
Although Franklin Templeton has had a presence in Asia for two decades, it has spent the last several years globetrotting across the Pacific Rim, hatching J.V.'s with various partners to further its global investment reach.
In many cases, foreign investment regulatory constraints have tied Franklin's hands, forcing it to settle for owning a minority stake.
"One of the ways we have built our global business is by making strategic investments in local asset management companies, and while we prefer full ownership, local regulations often limit our stake," said Lisa Gallegos, a Franklin Templeton spokeswoman.
This new Vietnam partnership was no different. Franklin was once again limited to the stake it was allowed to acquire. "At this time, the Vietnamese laws do not allow more than a 49% ownership from foreign investors," Gallegos confirmed.
However, Franklin's executives are big believers in never saying never.
"As the regulations change, we have increased our ownership to the allowable limit," Gallegos noted. "Some of the joint ventures that have translated into full ownership include [those in] Korea, India and Brazil," she added.
In July 2000, Franklin bought out its Korean venture partner, Good Morning Securities, giving the firm bragging rights to being the first 100% foreign-owned investment company in Korea.
In April 2007, Franklin completed the acquisition of the remaining 25% stake it did not own in two India- based asset management companies, making the company one of the largest private sector asset managers in India. That deal not only allowed Franklin to globetrot into India, but to also leverage its local asset managers.
Just last week, Franklin announced its 11 local equity managers based in Chennai, India, would manage the new Franklin India Growth Fund for U.S. investors.
Last January, Franklin entered into a strategic arrangement with China Life Asset Management to own a 26% stake in China Life Franklin Asset Management Co.
Serial Joint Venturer
Franklin Templeton has become a serial joint venturer hatching deals in other global markets, as well. Its business model is to wait patiently for the opportunity to acquire full control.
In 1997, the firm bought a minority 49.9% interest in a Sao Paulo, Brazil, investment firm, alongside the 50.1% interest owned by subsidiaries of Banco Bradesco. Nine years later, in July 2006, Franklin's parent company bought the remaining interest if had not owned and subsequently, following the July 2006 deal, launched Franklin Templeton Investimentos (Brasil) Ltda.
Also last year, Franklin acquired a 25% stake in Algebra Capital, a leading asset management firm serving Middle East/North Africa and based in Dubai, United Arab Emirates.
Franklin has done well with its joint ventures. But such arrangements, in general, can prove to be difficult for asset management would-be partner firms, according to Ben Phillips, managing director and head of strategic analysis at Jefferies Putnam Lovell, a division of the Jefferies Group.
"Japan, for example, has seen lots of joint-venture shipwrecks," Phillips pointed out.
In many cases, such as in China and Vietnam, U.S. firms cannot acquire full control. Very often, joint-venture partners find out that their respective agendas are very different and that the companies want to go in different directions, Phillips said.
Also, employee compensation can be an issue. And in the end, many well-intentioned joint ventures have failed.
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