Commentary on Political Economy

Monday, 13 July 2020

Chinese fund groups retreat from global growth drives

Several Chinese groups are putting the breaks on their expansion in Europe and the US © REUTERS
Chinese asset managers that embarked on aggressive international expansion pushes are scaling back their ambitions, as increasingly fraught relations between China and the west bring to an end what was touted as a golden age for Chinese fund houses abroad.
Several groups that established offices or fund ranges in Europe and the US in 2015 and 2016 are putting the breaks on their expansion or retrenching by closing funds, shrinking sales teams or dropping regulatory licences.
Harvest Global Investments, the $121bn fund manager whose 2015 London expansion was welcomed by then UK chancellor George Osborne, recently disbanded its international sales team, according to three people familiar with the matter.
GF Fund Management, which alongside Harvest was one of the first Chinese fund groups to establish a presence in London, this month dropped its licence in the UK, according to the Financial Conduct Authority register. The $110bn manager earlier this year liquidated a China A-shares exchange traded fund that it launched to great fanfare in 2017 and closed its Luxembourg-based fund range.
Another group, China Universal, has seen assets in its sole European fund shrink to just above €1m, according to Morningstar Direct. The company, which could not be reached for comment, never set up an office in Europe but has lost its Hong Kong-based international development head in the last few years, as has rival E Fund, which declined to comment.
The retrenchments mark a significant climbdown from the earlier growth aspirations of the Chinese managers. Harvest, GF and others expanded abroad with the aim of capitalising on growing allocations to China in global equity benchmarks to win international business.
It mirrors a parallel reversal in political relations between China and the west, particularly the UK, which cultivated close links with Chinese business under former prime minister David Cameron. Relations have unravelled on the back of the US-China trade war and China’s recent move to impose a national security law on Britain’s former colony of Hong Kong.
“Chinese asset managers are pulling in their reins,” said a person formerly involved in one manager’s growth push. “Sentiment has totally changed [since 2015]. The era of Chinese groups expanding internationally now feels like a damp squib.”
Harvest said two of its international sales employees had been dismissed but the team still existed. Three people told FTfm that the core part of the team had gone, with Harvest’s US and UK chief executives recently leaving the group. However, Harvest said Henry Zhang had moved to New York to be US chief.
Harvest maintains regulatory licences and registered corporate entities in New York and London. The group said it manages more than $10bn for clients outside of China, adding that it continued to see “strong interest” from European investors. It said it would continue to launch new strategies and engage international investors.
GF declined to comment.
The moves come at the same time that international asset managers are piling resources into establishing a foothold in the fast growing Chinese market.
Another person who was involved in a Chinese manager’s international expansion said the groups risked falling behind western counterparts in the race for investor cash. “[If they retrench], 10 years from now international investors will go to the big [US or European] groups” for China exposure, the person said.
Shelley Yang, managing director of Investao, a third-party marketing company that helps Chinese groups in Europe, said the huge growth in the Chinese domestic market was leading local fund groups to focus on local investors. Last week, China Universal raised Rmb50bn ($7.13bn) of investor money into a new fund within just four hours on the back of the strong rally in Chinese stocks, according to FT sister publication Ignites Asia.
Ms Yang, who previously worked as head of international at China Universal, said that some Chinese managers had underestimated the time and resources involved in achieving growth in Europe and chosen to pivot back to China.

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