Vanguard Group has said it will leave Hong Kong and plans to relocate staff from the territory to Shanghai, becoming the latest US firm to focus on the opening up of mainland China’s vast fund industry.
The Pennsylvania-based company, which had $6.3tn in assets under management at the end of July, expects to make some of its employees in Hong Kong redundant and will also close its sales office in Japan.
The world’s second-largest asset manager said in a statement that its Hong Kong operation “primarily serves institutional clients, and not the individual investors that are our primary strategic focus”.
It added that the company’s “future focus in Asia is on mainland China”. Some Hong Kong employees will be offered new Shanghai-based roles, it said.
The relocation of Vanguard’s primary regional office comes amid rising appetite from some of the biggest US financial companies, including JPMorgan and BlackRock, to take advantage of a liberalisation of mainland’s China fund market.
This week it emerged that JPMorgan’s asset management arm will need to pay a hefty premium to buy out its mainland joint-venture partner, China International Fund Management. The deal, announced in April, stands to make it the first fully foreign-owned fund business in the country.
Vanguard’s exit from Hong Kong comes at a time of high scrutiny of the city’s status as a financial centre, following Beijing’s imposition last month of a controversial national security law aimed at quashing political protests.
Hong Kong’s fund management association has sought to downplay fears of an exodus of investment talent and instead touted the territory’s status as a gateway to the fast-growing Chinese fund market.
But one Hong Kong-based banker said Vanguard’s retrenchment was a “major blow to the efforts of the regulators to grow fund management” in the city.
Vanguard, which specialises in low-cost index funds, said Hong Kong “continues to be an important capital market” for the company, but that “current industry dynamics are better suited to institutional investors”.
Z-Ben Advisors, a Shanghai-based asset management consultancy, said Vanguard’s policy of not paying commissions to intermediaries that sell its funds had hampered its efforts to break into the Hong Kong retail market.
China is already a growth market for Vanguard. Its wealth-management joint venture with Ant Group, owner of the popular Alipay platform, amassed about $300m of assets within a few months of its launch earlier this year. Five years ago, the firm added shares listed in Shanghai and Shenzhen to its flagship emerging market fund.
In an interview with the FT last year, Vanguard chief executive Tim Buckley said the potential of the Chinese mutual fund market was huge, but stressed the need for a steady approach.
“It’s China, so it is not a wide open market. There are still plenty of barriers to entry, to ownership, to fund launch, and they are just opening up so you’ve got to be patient. You don’t want to rush anything,” Mr Buckley said. “You’re not going to suddenly have some mutual fund culture overnight.”