It's always better to part as friends. Goldman Sachs (GS.N) was painstakingly diplomatic in selling the last of its stake in Industrial and Commercial Bank of China (601398.SS), (1398.HK) in 2013. Now it is back as the controlling partner in an asset management venture between the two that taps into Beijing's push to develop its capital markets. The American investment bank's old mantra of being "long-term greedy" – being willing to wait to profit from relationships – is at play once more.
The association with ICBC dates back almost two decades and was cemented in 2006 when Goldman took a 7% pre-float stake in the state-controlled bank for $2.5 billion. By the time it sold its final chunk in 2013, most rivals had already split from their mainland partners, making Goldman's relative longevity stand out. The Wall Street firm made more than three times its money and its timing was excellent: ICBC's Hong Kong-listed shares have returned just 40% in total since.
Asset management in China is expected to offer opportunities similar to ICBC's early performance as the industry evolves beyond a focus on short-term products. It could almost double to 150 trillion yuan ($23 trillion) in assets by 2030, per consultancy Z-Ben Advisors. Goldman's own research expects that Chinese households' investable assets alone will pass $70 trillion by that point. The opportunity is not lost on others: BlackRock this month announced a tie-up with China Construction Bank (601939.SS), (0939.HK) and Singapore's state fund Temasek, while in December Paris-based Amundi won approval for a majority-owned joint venture with Bank of China (601988.SS), (3988.HK).
Beijing wants Chinese companies to wean themselves off bank loans in favour of market-based funding and believes foreign expertise can speed up the process. In Goldman's case, the bank run by David Solomon will largely provide the products and $292 billion ICBC, with its 16,000-odd outlets and 440,000-strong workforce, the distribution.
Both companies are keen to bolster more stable fee-based revenue. ICBC is already a giant, generating 30 billion yuan in fees and commissions from its wealth management and private banking unit. Profiting from joint ventures is not as straightforward as from equity stakes; the two have still to decide, for example, which business to keep for themselves and which to funnel through their new endeavour.
That could put Goldman's patience to the test.