Ever hear of Shanghai Lujiazui International Financial Asset Exchange, or Lufax for short? No? You will soon enough. This market-leading fintech company is working to go public in Hong Kong next month at a $60 billion valuation, raising as much as $5 billion of fresh capital according to press accounts. Not bad for a company that was only founded in 2011.
Some more color:
- Lufax is a major player in the Chinese peer-to-peer lending space, using online platforms and technology to pair lenders and borrowers. Yes, this industry has seen a notable regulatory crackdown over the last few years. Lufax, partly owned by Ping An Group (an insurance company) has been able to weather that storm and positions itself as a survivor when the smoke clears.
- The Chair and CEO of Lufax is a former McKinsey director named Gregory Gibb. Scanning through several online video presentations, he comes as knowledgeable, smart and direct. He wasn’t afraid, for example, to label some of his competition as “Ponzi schemes” when the Chinese P2P sector started to unwind.
- Gibb has moved the company from P2P lending to a wider array of financial services like a discount brokerage offering. As of January 2018, Lufax had 33 million registered users and $77 billion in assets under management.
- Softbank’s Vision Fund – the largest VC fund in the world, at $97 billion – is looking to invest in Lufax as it goes public, according to press accounts.
- The company offers 500 products on its platform, making it somewhat of an Amazon-meets-Etrade business model.
Why it matters:
- Lufax has talked about going public for years, but the chatter around a Softbank investment signals it may complete a transaction this time.
- The company was able to pivot from P2P lending to offering a wide assortment of wealth management products for the local market. It is profitable now, and is positioning itself as a “Charles Schwab for the Chinese market”. They note that while Chinese super-high-net-worth individuals are well served by international and local financial firms, the merely affluent are not.
- Lufax would also like to expand into Hong Kong and Singapore, possibly using some of the proceeds from its IPO to speed that growth.
- While Lufax is unlikely to enter US/European markets any time soon, it’s possible a $60 billion IPO valuation puts it in the same neighborhood as Schwab ($75 billion) and well above TD Ameritrade ($35 billion), Interactive Brokers ($30 billion), and ETrade ($15 billion).
We’re always on the lookout for a “Disruption driven” story that flies under the radar, and Lufax certainly fits that bill. We have no idea how it will trade after its IPO, but the story up to now is important. While US brokers and asset managers play in a crowded field with declining margins, the Chinese market seems to be a center of both growth and creativity.
Yes, there will be more financial regulation in China. But it is not burdened by decades (or even centuries) of rulemaking and history, as it is in western countries. This – along with faster economic growth – should allow for further fintech-driven growth in China.
On the SoftBank investment: https://www.bloomberg.com/gadfly/articles/2017-12-06/softbank-eases-lufax-peer-pressure