Peng Wah Choy, the vice chairman and CEO of Hong Kong-based Harvest Global Investments Ltd., has high hopes that his parent company, Beijing-based Harvest Fund Management Co. Ltd., will emerge from the rapid ongoing opening of China's capital markets as one of the local Chinese managers best positioned to become a significant regional and eventual global player.
But getting there will require taking advantage of a fast-closing window of opportunity, warned Mr. Choy.
In a Jan. 8 interview, Mr. Choy said restricted access to China's markets for foreign asset managers has helped “a large number” of local fund management companies grow books of business of between US$50 billion and US$100 billion in the short period since the industry's launch in 1998.
Chinese fund management companies likely still have a couple of years where that access issue will play to their advantage, “giving us a chance to grow as quickly as we can,” he said.
But with China's regulators rapidly expanding access for foreign investors under existing quota programs, and adding new conduits to domestic markets, such as the Shanghai-Hong Kong Stock Connect program launched in November, that “unique proposition … is going away very, very quickly,” he said.
The window of opportunity “is becoming a door” which foreign asset managers will be able to walk through with increasing ease, he said.
If Chinese managers are able to use the remaining opportunity to build brands, add investment capabilities and win clients in different markets, “I think you have a chance to build from there,” said Mr. Choy.
Harvest Global, the foreign investor-focused business of China's third-largest fund management company, has contributed to its parent's rapid growth, with its AUM of roughly US$8 billion at the end of 2014 up by a third for the year and up at a compounded annual clip of 60% over the past five years.
For the past year, the group's AUM jumped roughly 45% to more than US$80 billion, noted Mr. Choy. Official figures for the end of 2014 have yet to be released.
Among the Hong Kong unit's four business segments, its passive and active strategies offered under China's Renminbi Qualified Foreign Institutional Investor program account for the largest chunk of AUM, following by the firm's H-share investments in Chinese companies listed on Hong Kong's stock exchange; investments in offshore Chinese fixed income, or Dim Sum bonds, and Asian equities — managed by the team that came over from joint venture partner Deutsche Bank when HGI was launched in 2009. Mr. Choy declined to provide specific AUM figures for the four business lines.
While that pace of AUM growth can't be expected to continue, Mr. Choy said five years from now “our ambition is to be within the top 50 (money management firms) in the world.”
He declined to specify an AUM target, noting that yearly market movements make such projections difficult. However, if the Pensions & Investments/Towers Watson ranking of the top 500 asset managers for the year ended Dec. 31, 2013, was the benchmark, that goal would have called for assets under management of more than US$340 billion.
If leading providers of benchmark indexes for investors around the globe, such as MSCI Inc., respond to China's recent market opening measures by adding a fraction of the country's A-shares market to their emerging markets indexes from 2016, as many observers anticipate, local managers “will be the first to benefit” but the flood of overseas money unleashed for China's market would help non-Chinese players as well — “a payday for all of us,” noted Mr. Choy.
Still, positioning Harvest for longer-term growth will demand a lot of work during this likely period of plenty, he said.
The group can't just sit here “and keep doing China and China and more China … we need to evolve from here” both in terms of geographic reach and investment capabilities, he said.
The Harvest brand will always be associated with China, but with China such a big part of Asia ex-Japan and global emerging markets, there's room to build on that China foundation to offer Asian and emerging market strategies in equity, fixed income, private equity and so on, said Mr. Choy.
Meanwhile, the firm will look to further extend its geographic reach, with Hong Kong as its base to cover Asia, London — where it's in the process of opening an office now — as its European headquarters and the U.S. as well, noted Mr. Choy.
As for the potential appetite of Chinese fund management companies to add manufacturing capabilities in the U.S. and Europe, Mr. Choy conceded arguments can be made that acquiring such capabilities could offer better chances of success than pursuing organic growth in those markets.
At the same time he struck a cautious tone, noting that the “huge ambitions” of Chinese fund management companies must be balanced by a sober analysis of the execution risks. “You have to make sure you can chew what you bite off, and digest it well,” he said.
