Vanguard has announced it will exit Hong Kong and transfer its Asian headquarters to Shanghai in a move that will be seen as a blow to the former British colony where overseas companies have expressed concerns about China’s recent imposition of a controversial national security law.
The world’s second-largest asset manager will also wind down its Japan operations, the company said.
Vanguard issued a statement to the Hong Kong Stock Exchange on Wednesday, saying it would “seek to implement an orderly exit from its exchange traded funds business in Hong Kong”, adding that it was considering appointing a new investment manager to take over the products, or terminating these listed funds.
“We regularly review our international business,” a company official said. “This review has now led us to the conclusion to wind down our Hong Kong operation, which primarily serves institutional clients, and not the individual investors that are our primary strategic focus.”
The official stressed that Vanguard still saw growth potential in Hong Kong, but added: “Unfortunately, from a distribution business standpoint, the current industry dynamics are better suited to institutional investors and do not currently support the scale needed for us to operate the economic engine behind our unique, low-cost, individual investor-orientated model.”
As part of the company’s departure from the Hong Kong market where its current Asia headquarters are located, Vanguard is considering transferring its Hong Kong Mandatory Provident Fund pension portfolio to another fund management company, a Shanghai-based official said. Vanguard listed its first ETF in Hong Kong in May 2013.
Scott Conking, Vanguard’s newly appointed Asia head, made the announcement to regional employees in a town-hall meeting on Wednesday, according to multiple sources familiar with the matter who said he also announced the closure of Vanguard’s Japan operations.
Mr Conking, who was only appointed to the role in March, also told some Hong Kong-based staff that they would have to relocate to its Shanghai office, which would become the company’s new regional headquarters, while other staff were told they had to leave the company.
Vanguard, which had $5.7tn in global assets as of end-April, closed its Singapore office in 2018 when it also cut one-fifth of its headcount in the Hong Kong office.
With the closure of its Hong Kong and Japan offices, Vanguard will only have Asia-Pacific presences in Shanghai, Beijing and Melbourne in Australia. However, its Beijing representative office may also be affected by the changes to its regional business, two sources said.
The company’s move to Shanghai will be seen as a blow to Hong Kong where the introduction of China’s national security law has raised concerns in the business community, especially among US companies, and sparked fears that some companies could look to leave.
Vanguard has been ploughing resources into its China growth and development plans, while its wider Asia business has struggled somewhat to translate its low-fee, zero commission model to some of Asia’s regional retail fund management markets, where large banks call the shots over asset management companies.
Number of clients Vanguard has won for its China fund advisory joint venture since March
Vanguard launched Bang Ni Tou, its China fund advisory digital platform, in March. The joint venture, with financial technology giant Ant, has already attracted 200,000 clients who have invested $315m.
Vanguard also confirmed that the company would cease all its onshore presence and operations in Japan, and would no longer actively market or distribute existing or new products in the market.
Earlier this year, Vanguard agreed to sell all its shares in its Japan investment joint venture, Monex-Saison-Vanguard Investment Partners, which was established in 2015.
*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.