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Global Management Forum 2018

Hong Kong investor in Peach Aviation now aims to 'disrupt' banks

First Eastern CEO Victor Chu plans foray into Japanese fintech

First Eastern Investment Group’s Founding Chairman Victor L. L. Chu says he will remain as significant investor to the Japanese low-cost carrier. (Photo by Shihoko Nakaoka)

TOKYO -- The newest target for Hong Kong-based private equity firm First Eastern Investment Group is virtual banking -- not on its home turf, but in Japan and Europe.

The longtime, China-focused startup investor wants to shake up financial services for small businesses in much the same way it changed Japan's airline industry, possibly by bringing in Chinese capital, founder and Chairman Victor L.L. Chu told the Nikkei Asian Review on the sidelines of the Nikkei Global Management Forum on Nov. 6.

Chu, a lawyer by profession, entered the investment business in 1988 with the family-funded First Eastern. His debt-free investment portfolio now contains around 250 companies, with a total value of about $2 billion. Assets used to be centered in mainland China, but they have expanded into Japan, Southeast Asia, the Middle East and Europe.

First Eastern's latest notable success was its investment in the highly profitable Japanese budget airline Peach Aviation, which launched in 2011 as a joint venture with ANA Holdings and the Innovation Network Corp. of Japan, a government-backed investment fund.

Chu's fund recently reduced its stake in the carrier from the original 33.3% -- the limit for foreign ownership of a Japanese airline -- to about 7% through two buyout rounds by ANA, earning a substantial profit.

First Eastern's latest notable success was its investment in profitable Japanese budget carrier Peach Aviation.

Chu confirmed to remain as major stakeholder after Peach's merger with Vanilla, ANA's another low-cost carrier subsidiary. "Our intention is to be a long-term investor."

Chu said his foray into virtual banking "is similar to my strategy in LCC," or low-cost carriers. He considers both virtual banking services and budget airlines "disruptors" that bring "simplicity and clarity" to complicated businesses.

"We want to be a small disruptor and contributor," Chu said.

As with Peach Aviation, where Chu helped cash in on outbound tourism from the Chinese mainland, he hopes his new banking endeavor will benefit from his China expertise. He said he expects a good amount of deposits would come from China. Although Chinese nationals can only move $50,000 a year outside the country, Chu believes that is enough to make a start.

The Hong Kong Monetary Authority -- the territory's de facto central bank -- had as of August accepted about 30 license applications for new virtual banking businesses, which is designed to provide services mainly over the internet rather than at physical branches. The authority aims to "promote the application of financial technology and innovation," while improving financial inclusiveness. The territory may see its first batch of virtual banks open as early as next year.

Yet Chu intends to make his first move in Japan and Europe, believing that most of the Hong Kong applications are from existing banks for "defensive reasons."

Chu has been talking to potential partners, but not yet with regulators. "We will apply in Japan," he said, adding that "it may take time" because of possible regulatory hurdles. Chu said First Eastern is already an accredited financial institution in Hong Kong with a credible track record, while Tokyo wants fintech and other new types of financial services to flourish.

Besides virtual banking, Chu has recently invested in fintech and environmental services, and wants to bring these technologies abroad, beyond their respective original market.

One such investment is Chinese fintech startup Bicai, which lets users compare various financial services on an app. According to Chu, the 1-year-old company is already profitable, with 50 million downloads, and he plans to bring the service to Hong Kong, Europe and possibly Japan.

Since First Eastern is fully self-funded, Chu is only "very modestly" affected by the recent downturn in global equity markets. But he is aware of the risks posed by U.S. President Donald Trump's trade war with China as well as Brexit.

"We are being very selective [in new investments and focus] more on helping existing portfolio companies to go outside of their homes," he said.

In his appearance at the Nikkei forum, Chu pointed to the compound tensions of the U.S.-China trade war and stock overvaluation as the driving forces behind the recent rout in global technology stocks. But unlike the dot-com bubble of the 1990s, today's technology companies largely displayed "real substance and real innovation," he said.

"Now is not the time to borrow money to invest in tech stocks, but is the time to wait, let the dust settle," he said. "There could be very good contrarian opportunities."

The Chinese investment environment of today is vastly different to the one First Eastern entered three decades ago, Chu told the audience. "Thirty years ago, when the inspector from the environmental regulatory body came to inspect the factory, normally a good lunch would be able to get clearance. Some friendly guanxi would do the trick," he said. Guanxi means "relationship" in Mandarin and in this case, it refers to the practice of using connections to get business done.

Today, however, such regulatory examinations tend to be stricter than global standards, he said.

Nikkei staff writer Sarah Hilton contributed to this article.

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