Asset management veteran James Sun says the industry’s next big oasis will be the Chinese mainland as its economic clout intensifies, and telling the new China story will help to make it happen. He talks to Evelyn Yu.
James Sun Chen, CEO of Harvest Global Investments, says foreign investors’ growing interest in the Chinese mainland presents a bonanza for the asset management business. (PARKER ZHENG / CHINA DAILY)
As China’s opening-up exercise kicks into overdrive and with the nation primed to be the world’s second-largest asset-management hub within a year, foreign investors are still falling short in allocating their assets on the Chinese mainland.
The discrepancy awfully calls for an adjustment that would present a golden opportunity for Chinese asset managers to rise to the occasion, according to James Sun Chen, a leading light in the industry.
Sun, who helms Harvest Global Investments — the overseas arm of one of the mainland’s biggest asset managers, Harvest Fund Management — points to the hard facts to expound his argument.
Compared to global asset management houses, the industry is still riding on a steep learning curve with twists and turns (on the mainland)
James Sun Chen, CEO at Harvest Global Investments
“The mainland’s GDP now accounts for more than 15 percent of the global GDP, in stark contrast to foreign investors’ current assets allocation in China, which is less than 1 percent,” he says.
He sees overseas investors’ “escalating interest” in the mainland as a bonanza for the business, and asset managers like HGI, which boasts a global footprint and a deep understanding of China, are at the forefront in reaping the fruits.
A recent report by Casey Quirk reckons that China is poised to emerge as the world’s second-largest asset management market after the United States by 2019. By 2030, the mainland market would swell to US$17 trillion — up from US$2.8 trillion in 2016.
Leveraging the clout of its parent Harvest Fund Management — one of the earliest asset managers established in 1999 with US$150 billion in assets under management (AUM) as of December, 2017 — HGI counts a slew of top banks, insurance companies and pension funds on the mainland among its domestic clients.
As a wholly-owned unit of one of the biggest names in the country’s asset management sector, HGI also prides itself on an international tie-up with Deutsche Asset Management Asia (DeMA) — part of Deutsche Bank Group — which grabbed a 19.5-percent stake in Harvest Fund Management in 2005 before lifting it to 30 percent three years later. Subsequently, in 2009, HGI forged an agreement with DeMA taking its Asian strategy unit into its fold.
As HGI marks the 10th anniversary of its inception in Hong Kong this year, Sun has set his sights on the global stage, seeing a severe mismatch between China’s growing economic prowess and the negligible presence of foreign investors in the country.
Remedial efforts are set to roll as overseas investors prepare to lift their mainland exposure, fueled by the inclusion of A-shares in MSCI China, which is set to take effect in June this year.
Winning over the day
With AUM of US$6 billion under his belt as of December, 2017, Sun is candid that while it’s easy to win over the trust of domestic institutional investors, signing up foreign clients could be a very different story.
“On one hand, in many markets institutional investors habitually buy domestic assets that can constitute over 90 percent of an asset manager’s investment portfolio. HGI eyes more open markets, such as those in Europe and the US, where institutional investors might set side 30 to 50 percent for allocation overseas. Despite that, is still hard to convince investors in those markets to hand over their money to a Chinese asset manager.”
For every deal struck with foreign institutional investors, it could take six to eight meetings to thrash things out over a year, says Sun.
But, being a good storyteller in China essentially helps him win over the day. “There’s still a wall of worry among overseas investors partly because many of them had never looked into the market before. The ubiquitous negative news about China has exacerbated their nervousness. To tell a story about the new China in a succinct, clear and vivid fashion helps to break down the wall.”
The many facets about the new China — demographic dividends on a huge population base, solid GDP growth, an ever rising new economy backed by a powerful technology engine, and nationwide consumption upgrading — have all constituted a compelling story of a booming economy.
HGI’s global thrust is on track. Having opened its New York office in 2012 and another in London in 2015, it is among the first batch of Chinese asset managers to secure a foothold abroad. The company has just launched its first Undertakings for the Collective Investment of Transferable Securities (UCITS) fund that grants access for its foreign investors to equities in Hong Kong and the mainland that are associated with the new economy. It has also become the first enterprise to qualify for funds under the Switzerland-Hong Kong Mutual Recognition of Funds scheme, which was created in December, 2016.
Finding the gems
Today, HGI has half of its AUM entrusted wealth of its foreign institutional clients. Sun aims to grow the company’s AUM pool by 20 to 30 percent annually.
The tie-up with Deutsche Bank Group has helped the group keep up with the best practices in a matured market in terms of investment procedures and risk management framework.
Yet, international genie is not sufficient in a relatively inefficient market, says Sun. “Down-to-earth” researching ability and a deep understanding of the mainland are what’s needed to help asset managers steer clear of uncertainties and find the gems that are primed for quantum growth.
“Roll up your sleeves” is what HGI has exhorted its strategists. Investment professionals are asked to do their own research rather than relying solely on third-party reports, many of which are constantly sent to the mainland for factory visits and other field works.
Sun thinks his primary role is to bridge his team’s extensive surveys with the needs of clients to yield the best results. HGI is flexible in offering tailor-made solutions-based products. While many insurance clients like absolute return products, his bank clients might favor products with high yields and low volatility.
“HFM is also among the first Chinese fund managers to embrace environmental, social and governance investing as many of our northern European clients are highly conscious of a responsible investing strategy.”
As foreign investors reach out to emerging markets, and with Chinese market and domestic investors’ growing appetite for global asset allocation, Sun finds asset managers in Hong Kong well placed to seize the “two-way” opportunities.
He believes the spate of preferential policies, including the much anticipated two-way bond connect, the exchange-traded fund connect and the H-share full circulation pilot program, augur well for the city’s financial market.
“The remedy to fix the severe deficiency of allocation to the mainland has started, and those who initially are looking for beta in the market might be pleasantly surprised to discover many alpha opportunities with a closer look. The country’s development is presenting very exciting stories to foreign investors.”
‘You’ve got to believe in the mainland story’
James Sun Chen, who was born and raised in Beijing, started his career as a financial consultant for the Manhattan office of Charles Schwab — a San Francisco-based bank and brokerage firm — fresh from university.
He had served in multiple posts over a decade before becoming managing director at Charles Schwab Hong Kong Ltd.
Sun says he really appreciates his stint at an established US bank, and his yearn to return to the Chinese mainland to get involved in its financial services sector had been simmering for years.
The mainland market is now very much like that of the US 20 years ago, Sun reminisces, recalling his time as a veteran financial practitioner in New York. He had seen the encompassing reform on Wall Street in terms of asset management, private equity, hedge funds and quantitative trading.
He had envisaged that such a vigorous revolution would be duplicated in the vast Chinese market, presenting tremendous opportunities.
“And, I want to be part of that when the time comes,” he said when he took over as chief executive officer at Harvest Global Investments in 2015.
It’s a very interesting period for Chinese asset managers, he says, because while many of the established foreign peers have reached maturity, Chinese asset management is still in its youth.
But, he relishes the “vigor” and “entrepreneurship”of Chinese asset managers. Be it an extremely packed two days of brainstorming in a seaside resort in Hainan that would leave him absolutely no time for the stunning sea views, or the some 300 young faces that ardently listen to his speech without a script in Beijing, Sun is heartened to see mainland asset managers “emerging from nothing and growing by leaps and bounds”.
Having said that, he believes that, compared to global asset management houses, the industry is still riding on a steep learning curve with twists and turns.
As the first batch of Chinese asset managers going on a global drive, there are not many examples they can draw lessons from. Sun reckons that the team’s collective wisdom, rather than the leader’s individual judgment, is essential for him to make less mistakes.
He prefers a flat structure in the office, where every employee can speak their minds even for advice that’s harsh for the ear. Be it telling employees off in calling him “Sun Zong” — a presiding Chinese culture among subordinates in addressing their superiors, though such efforts are often futile in its Beijing office — or the habit of interviewing in person every potential employee from management to the entry level.
Sun appreciates new talents with integrity. “Eventually, asset management is people’s business, it’s not just money, but people’s money. Asset managers have to be responsible.”
Global asset managers are much a scene of big foreign names, but Sun sees that, in line with the country’s solid economy, sheer size and renminbi’s internationalization, Chinese asset managers can eventually break into the big bracket and become global players.
“You’ve got to believe in the mainland story.”
Contact the writer at firstname.lastname@example.org