Calvin Choi, chairman and president of Hong Kong investment house AMTD Group Co., was looking for ventures in which to invest back in early 2012 when he made a cold call to Lending Club co-founder Soul Htite. Instead of reaching out by phone, Choi connected via LinkedIn.
Choi expected Htite to be in San Francisco, home of Lending Club, a top U.S. peer-to-peer lender. But the entrepreneur, born to French-Moroccan parents in Montreal, responded from Shanghai, where he was planning the launch of P2P lending platform Dianrong.com. Choi was immediately interested in backing the venture.
One of Dianrong’s earliest investors, AMTD has allocated a total of $100 million, or 10 percent of its fintech and digital innovation investment fund, the largest such vehicle in Hong Kong and one of the biggest in Asia. Besides its 10 percent position in Dianrong, the asset manager and full-service financial group owns stakes in companies worldwide.
For its part, Dianrong, which Htite founded with Shanghai-based lawyer and private equity investor Kevin Guo, has become one of China’s premier P2P lenders. Over the past three years the platform has extended $3 billion in loans, giving creditors the chance to earn average returns of 7 to 8 percent. “We will have to wait another ten to 20 years for banks here to learn Internet lending, which is not a simple thing,” Htite says. “In the meantime, we are here to both help and profit from the opportunities.”
AMTD represents the rise of Asian investors in the global fintech industry, which until recently was dominated by Western private equity outfits. But the firm doesn’t want the market all to itself: At home and abroad, it has shown a willingness to work with fellow investors and other parties.
“We see a lot of ground for collaboration between AMTD and Dianrong,” says Choi, noting that Dianrong’s credibility in the marketplace was further enhanced when London-based emerging-markets bank Standard Chartered and the China Fintech Fund, an AMTD affiliate, led a consortium that invested $207 million in the lender last September. Standard Chartered follows on the heels of U.S. investment firm Tiger Global Management -- an early backer of Facebook -- whose venture capital unit took a stake in Dianrong in 2015.
Last year AMTD formed a long-term alliance with the largest fintech event organizer, New York–based LendIt, to promote the growth of the industry in Hong Kong and other parts in Asia. The two have begun hosting summits for entrepreneurs and investors in Hong Kong and Shanghai. They also recently announced that they will open a joint global office in New York to focus on connecting Asian capital with fintech opportunities in the U.S. and other developed markets.
“Expect to see more global fintech players establish concrete partnerships with local players,” says Choi, 38, who previously held posts at UBS and Citigroup and oversaw initial public offerings by several major Chinese financial institutions in the past decade, among them China CITIC Bank International, China Everbright Bank Co., and Haitong Securities Co. “And expect to see these alliances with institutions regionally expand beyond their local markets.”
China is home to the world’s largest online finance market, with more than 3,000 fintech firms offering a wide range of services to 500 million users, according to a recent report by management consulting firm McKinsey & Co. McKinsey estimates that Internet finance companies lent out 12 trillion yuan ($1.73 trillion) to 15 trillion yuan between 2012 and 2015.
Growth in the sector has been so explosive that regulators recently issued a series of rules to clamp down on inevitable scams and fraudulent behavior. These changes — which include mandates that fintech companies must register with financial regulatory agencies, that they can’t offer banking services without banking licenses, and that P2P firms, in particular, can only be brokers and not lenders — have forced the industry into consolidation.
The new rules show that the P2P industry has reached a size and scale that may pose a threat to the nation’s banks, many of which are state-owned or -controlled, says Janos Barberis, founder of information platform FinTech Hong Kong and SuperCharger FinTech Accelerator, a start-up incubation ecosystem based in Hong Kong that works with fledging firms throughout Asia. They will cause the industry to contract around few larger and more established players, Barberis predicts.
Choi of AMTD says he’s happy to see the new rules. “We welcome this type of industry regulation,” he adds, arguing that it gives the fintech sector a clearer direction for growth and focus.
AMTD has taken stakes in half a dozen other fintech firms in China and overseas. Among them are China-based chauffeur service UCAR, which last year listed on the nation’s over-the-counter markets with U.S. private equity firm Warburg Pincus as another shareholder. AMTD also joined IDG Capital, a Chinese affiliate of media giant International Data Group, by investing in leading online-to-offline secondhand car retailing platform YouChe.com, which intends to go public in the next 12 to 18 months.
AMTD typically puts up between $30 million and $50 million for a 15 to 20 percent stake in a company. However, the firm wants a board seat so it can deploy staff to join portfolio companies to participate in management, provide strategic input, and create value when the need arises.
“There is no geographic restriction,” Choi says. AMTD has invested in the U.S. — where it has stakes in student loan provider Credible Labs and Peachjar, a platform that keeps parents informed about after-school programs — and is preparing to move into Southeast Asia. “We like the Southeast Asian market, where we see many opportunities, given its world-leading population base and its role as a growth engine for Asia.”
In addition to managing its fintech and digital innovation fund, AMTD worked with its two major shareholders — the offshore unit of China Minsheng Investment Group, a privately owned investment conglomerate based in Shanghai; and L.R. Capital Group, a $4 billion–plus multifamily office that represents Li Ka-shing and several other Asian tycoons — to launch the China Fintech Fund in 2015.
This vehicle can invest substantially more than AMTD typically does in a fintech venture, Choi says, adding that AMTD and the fund are constantly scouring many Chinese provinces for start-ups with outstanding entrepreneurs and strong business plans.
“China has the biggest population in Asia, and its growth potential remains enormous,” Choi says. “It will take time for traditional financial services companies there to embrace financial technology. In the meantime, this gives financial technology players opportunities to grow.”
