Societe Generale has struck an alliance with London-based and Tokyo-listed Japaninvest, an independent equity research boutique. Under the terms of the deal, Japaninvest will remain independent, but will deliver all of its North Asia equity research via SG's platform.
Economic terms of the deal were not disclosed, but Japaninvest preferred an alliance versus an outright sale in order to preserve its independence, said Rupert Eastwood, Japaninvest CEO. Japaninvest analysts will, however, support SG's investment banking deals by assisting it on roadshows.
For SG, the benefit of an alliance is to also convince clients that the research is independent and not guided by underwriting assignments, said David Escoffier, global head of equities and flow derivatives at SG in London.
SG covers 25 Asian trading venues for cash equities and derivatives, ETFs, delta-1 products and so on. Its research effort concentrates on global macro, quant and indices. What it has lacked in the region is a bottom-up fundamental stock research capability.
Eastwood said Japaninvest has also reached its natural level of growth, given its lack of an execution business. Founded in 2002, it has focused initially on Japanese blue-chips and mid-cap growth companies. Few global money managers are now running Japan country mandates, however, and Japanese coverage is subsumed into Asian or global product.
This has led Japaninvest to focus more on research on North Asia, with a research office in Hong Kong and a branch in Shanghai. Its analysts are bilingual, speaking English and Japanese, and its approach is to view North Asia (including Greater China and Korea) as a manufacturing universe integrated with Japan. So particularly in Japan-dominant sectors such as autos, its analysts need to speak Japanese as well as English or a local language.
Eastwood said the firm is looking to add analysts in Asia with bilingual capabilities. Japan, Korea, Taiwan, Hong Kong and China together account for 78% of Asia GDP (including India), and a similar proportion of commissions, he added.
Japaninvest's natural limits have also spurred it for the past year to seek a tie-up of some sort with an investment bank with an execution capability.
All of its services will be distributed via SG, with the hope that clients will also take advantage of SG's execution and related services, said Eastwood. The two firms already have a similar clientele, which makes the alliance easier to implement. He would not comment on how revenues are to be shared between the two; only if a buy-side client initiates a commission-sharing agreement directly with Japaninvest would its research be unbundled from SG's broader offering.
Escoffier added that the deal can augment SG's prime broking business. Given the bank's strengths in macro research and economics, most of its prime-broking business is to macro hedge funds. Adding bottom-up stock research from Japaninvest should also allow SG to approach long/short equity hedge funds covering the region.