Caixin
Aug 27, 2020 04:04 AM
FINANCE

Vanguard to Move Asian Operation Hub to Shanghai From Hong Kong

Vanguard Group will move its Asian headquarters from Hong Kong to Shanghai.
Vanguard Group will move its Asian headquarters from Hong Kong to Shanghai.

One of world’s largest managers of mutual and index funds is betting on the Chinese mainland market while closing operations in Hong Kong and Japan.

U.S. asset manager Vanguard Group, which has about $6.2 trillion in assets under management, confirmed Wednesday that it will exit Hong Kong and Japan and move its Asian headquarters to Shanghai from Hong Kong. The fund giant’s spokesperson said the change would take between six months and two years.

Vanguard has a limited presence in Hong Kong, offering exchange-traded funds (ETFs), mandatory provident fund, which is a compulsory pension fund designed for the retirement of residents in Hong Kong, and index-tracking collective investment plans. The fund manager said it notified clients, regulators and other related parties of an orderly exit from these products.

Vanguard has 50 employees in its Hong Kong office. Some of them will be terminated and others will transfer to the Shanghai office, the company said.

“Our future focus in Asia is on the Chinese mainland,” Vanguard’s spokesperson told Caixin.

Vanguard was already expanding its presence in the mainland. In 2017, Vanguard was among the first foreign asset managers to set up wholly foreign-owned enterprises in Shanghai. Last December, Vanguard announced an advisory joint venture with China’s leading fintech company Ant Group Co. Ltd., an affiliate of Alibaba Group Holding Ltd, to provide retail investment advisory services through Ant’s payment platform Alipay.

Vanguard’s Hong Kong business primarily served institutional clients and not retail investors, its primary focus, the company said. Vanguard closed its Singapore office in 2018 after reviewing international operations and adjusted its service approach in other markets outside the U.S. based on this business model, the company said.

“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 company’s low-cost model, Vanguard said of its Hong Kong operations.

The fund industry’s distribution channel in Hong Kong is mainly through banks. The fees banks charge will increase the cost for fund managers focusing on low-fee products such as ETFs and index funds. Retail investors in Hong Kong generally prefer individual stocks over index funds.

Vanguard currently offers six ETFs in Hong Kong, with HK$3.93 billion ($464 million) in assets under management. As of March 31, ETFs listed on the Hong Kong Stock Exchange had a market cap of HK$279 billion, meaning Vanguard accounted for only about 1.14% of Hong Kong’s ETF market, data from the Securities and Futures Commission of Hong Kong show.

A spokesperson for the securities regulator said it was informed that the exit decision was part of Vanguard’s business restructuring plan and reminded the company to ensure that investors’ interests are protected.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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