Value Partners’ AUM recovers but net inflows tepid

17 August 2017   Category: News, Asia, China, Global, Hong Kong, Singapore, Taiwan, USA, Europe, United Kingdom   By Liz Mak

Hong Kong fund manager Value Partners’ AUM has recovered from last year’s double-digit decline, but the company is still dealing with tepid net inflows as redemptions almost equal new subscriptions even amid the local market rally.

Its end-June AUM stood at US$15.5 billion, up 16.7% from end-December, thanks to positive fund returns in the first half of 2017.

That’s a bounce-back from last year, when AUM declined 15% from 2015, in what Value Partners’ Founder and Chairman Cheah Cheng Hye had described as the company’s “toughest year since the 2008 global financial crisis”.

But even with record performances in local markets, the company is registering as much new subscriptions as redemption orders, resulting in a tepid net inflow of just $163 million in the January-June period, Value Partners says in its first-half 2017 results.

This, despite the fact that its flagship Value Partners Classic Fund climbed 25.3% during the period, outperforming the Hang Seng Index’s 18.7% gain. The Value Partners High-Dividend Stocks Fund, its largest public fund in Hong Kong, was also up 18.2% in the first six months of the year.

“The fund performances are not bad. It’s now all down to market performance in the second-half,” Wang Wen, an analyst at GF Securities (Hong Kong) tells Asia Asset Management (AAM).

But Au King Lun, Value Partners’ chief executive officer since December, seems unfazed. In an interview with AAM before the results were announced on Tuesday (August 15), he says he believes the stars are aligned for him, and that he is on a “once in a lifetime opportunity” to take the Hong Kong brand global after index provider MSCI Inc’s decision to include China A-shares in its main emerging markets and global indices.

This global transformation will happen over the next three-to-five years, according to Mr. Au.

“We are realigning our strategy. We have just exited our Taiwan JV (joint venture). We are in the process of closing down the China microfinance business. Up next, we are applying for a licence in Qianhai. Going forward, we want to focus on the core markets. We want to do more in markets that are more strategic,” he says.

“We have applied for a private fund manager licence (in China). We are waiting for approval (from the Asset Management Association of China). For whatever reason, it hasn’t happened yet. Previously we had a JV there.”

A physicist by training, Mr. Au says he took the job at Value Partners when Mr. Cheah, who is also the co-chief investment officer, pitched him on the company’s global vision. Although best known for its Greater China equities expertise, the Hong Kong company – founded in 1993 – now has outposts in Singapore and the UK.

“I knew this is an opportunity. This is a good brand,” Mr. Au says. “We are now more than a China manager. We have strategies in emerging markets, multi-asset, real estate. We want to become a solution provider for our Asian clients. We have many strong relationships with regional distributors.”

“Outside of Asia – in Europe and US – we will focus on our Greater China brand. It’s hard after all to compete with global managers on their home markets,” he adds.

MSCI’s decision to include A-shares in its indices means that “all global managers will need to get serious about China. It will be on their benchmark. A house’s China performance has to be good.”

Value Partners has invested more resources in its alternatives and exchange-traded fund businesses this year.

In July, it set up its first real estate private equity fund, with investments in Japan. And earlier this month, the company appointed David Quah as joint managing director with Kai Mak for its quantitative investment solutions team.

Mr. Au does not see internal competition between these various offerings.

“Most of our offerings are home grown. We try as much as possible to build our own capability. In appointing David, we are doing smart beta not traditional passive. We believe we are giving value-add,” he says.

Mr. Au disputes the claim that he has joined a fund house that’s often criticised by stock analysts for making millionaires faster than it delivers returns.

“Our cost ratio is at about 50%. It’s not high compared to the market. Our philosophy is performance driven – regardless if it’s investment team, sales or mid-office. It is fair,” he says.

Meanwhile, Value Partners says in its results that acquisition talks with a potential buyer – first disclosed to markets in May and understood by AAM to be China’s HNA Group (HNA) – are still in progress and no definitive agreement has been signed.

However, since HNA has been censured by regulators for its leverage and aggressive overseas deals, Value Partners “has not made much more disclosures,” GF Securities’ Ms. Wang says. “But under the tighter regulations, the deal is now less likely.”

“HNA understands there will be negative impact when the major shareholders who themselves are major players in the company exit from Value Partners,” she adds.

Mr. Cheah and non-executive chairman Yeh V-Nee – who hold 24.9% and 16.2%, respectively, in Value Partners – had been disclosed as the two main shareholders that were approached, but the interested party had only been described as a “potential offeror”.