Goldman Sachs (GS.N) said on Tuesday it had rehired veteran banker Mark Schwartz in the role of chairman of its Asia Pacific unit, based in Beijing, becoming the first global investment bank to place its sole regional chairman in China's capital.
Schwartz's placement in Beijing - rather than Hong Kong where peers from other big banks sit - puts him in a position to oversee the bank's joint venture there, Goldman Sachs Gao Hua, and to have quick access to leaders of some of the world's largest companies.
Schwartz, 57, first hired by Goldman 33 years ago, will replace Michael Evans, who has served as Chairman of Asia Pacific since 2004. Evans is based in New York and will continue in his role as a vice chairman of the bank and global head of growth markets.
After leaving Goldman in 2001, Schwartz worked as an adviser to George Soros and in 2006 formed with Raj Rajaratnam and former Goldman board member Rajat Gupta a combined hedge fund and private equity group named Taj Capital.
The $1.4 billion fund, which was renamed New Silk Route, invests in India, Asia and the Middle East. Rajaratnam was jailed in October 2011 for insider trading, while Gupta is on trial on charges stemming from the investigation into Rajaratnam's Galleon Group.
Schwartz's involvement with the fund was brief, and he is not listed as an officer on its website.
Schwartz's latest move sees Goldman Sachs fill a hole that has lingered since mid-2010, when Evans' move to New York to head the emerging markets drive meant that the firm's Asia chairman was not based in the region.
"The move to Beijing is very symbolic, and is similar to HSBC moving its CEO office to Hong Kong," said Ronald Wan, a managing director at China Merchants Securities (Hong Kong).
"They want to show a commitment to the China market, and probably improve ties with state-owned enterprises and the government."
While the firm stressed that this is a regional role, placing Schwartz in Beijing puts him in a position to bolster Goldman Sachs Gao Hua's efforts in China, and push key corporate and government relationships there.
Goldman faces several challenges in China, including renewed competition from foreign securities joint ventures and the rise of domestic investment banks and brokerages.
The firm is the top-ranked bank globally for China equity offerings worldwide year-to-date, though it is only 29th for listings in the onshore "A" share market, according to Thomson Reuters data. That ranking places it below many of its Western rivals, including Credit Suisse CSGNNY.UL, Deutsche Bank (DBKGn.DE), JP Morgan (JPM.N) and UBS (UBSN.VX).
LOCAL DIFFICULTIES
Foreign investment banks have found it difficult to make headway in China's onshore markets, with local firms using their deeper connections to win the lion's share of fees.
While Goldman Sachs has more control over its China operations than some rivals who arrived after a tightening of the ownership rules, the U.S. bank also suffers from not having total ownership of its China business.
The compensation structure of foreign banks also makes it harder for them to be profitable in China.
While Western firms need to chase big deals to cover the costs of their well-paid bankers, Chinese securities firms originate business using large teams of lower-paid dealmakers who get a cut of the fee for success.
With fewer jumbo-sized mandates available as the big banks and state-owned industrial firms complete their IPOs, the fees are more evenly distributed among medium and small-sized companies that the Chinese underwriters are better suited to execute.
"That's our biggest competitive advantage," said Dan Weil, global head of institutional sales and trading at Guosen Securities, the top-ranked China equity house year-to-date.
"We have 500 bankers, but we're not paying them $1 million each just to walk through door. They get paid on success. That enables the firm to have reach."
Part of the strategy behind locating Schwartz in Beijing will be to use his seniority to win more deals, in a market where bankers say clients put particular emphasis on the rank of the person pitching to them.
STRONGER FOOTING
Goldman is on a stronger footing in Asia-Pacific investment banking overall, having closed 2011 as the second-ranked firm in the region by fees and market share according to Thomson Reuters data, behind UBS.
This year, when completed listings have been thin on the ground, it won roles on some of the more high profile attempted listings, including Formula One and Graff Diamonds.
In Asia excluding Japan M&A advisory year-to-date, Goldman is top-ranked so far with 39 announced deals worth a combined $33 billion.
Schwartz's role will see him oversee all of the firm's business in Asia, encompassing asset management, private wealth management and securities trading in addition to investment banking.
While he is the first sole Asia Pacific chairman of a global investment bank to be based in Beijing, Morgan Stanley's Asia Pacific Co-CEO Wei Sun Christianson is there. Morgan Stanley has no regional chairman.
Schwartz is a Goldman Sachs veteran, having joined the firm in 1979 in the investment banking division. He was named a partner in the firm in 1988.
His career at Goldman Sachs saw him work in fixed income and then run the capital markets division from 1991 to 1997, before a move to Tokyo to become president of the Japan business. He held the title of chairman of Goldman Sachs Asia from 1999 to 2001.
On leaving Goldman at the end of that stint in 2001, Schwartz worked for Soros Fund Management, first as an adviser and then as president and CEO from 2003 to 2004.
Since 2006, Schwartz has been the chairman of MissionPoint Capital Partners, an investment firm he co-founded, which is focused on the transition to a lower carbon economy.
This article is copyrighted by Reuters
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