Asset management giant Vanguard has announced that it will close its Hong Kong and Japan offices as part of its strategic shift to mainland China.
“Our future aspirations in Asia are to serve Chinese individual investors in mainland China, so our Shanghai office will become our primary office in Asia,” a spokeswoman told our sister publication Fund Selector Asia.
Although some of the 50 staff in the Hong Kong office will relocate to Shanghai, the majority will be made redundant.
ETF business
As part of the closure, Vanguard intends to exit from its exchange-traded fund (ETF) operations in Hong Kong within the next 24 months, according to a filing to the Hong Kong Stock Exchange (HKSE).
The firm will either appoint a manager of the ETF series and each sub-fund, or terminate them entirely.
The six products affected are:
- Vanguard’s FTSE Asia ex Japan;
- FTSE Developed Europe;
- FTSE Japan;
- FTSE Asia ex Japan High Dividend Yield;
- S&P 500; and
- Total China Index ETFs.
Vanguard will also close or transfer its Mandatory Provident Fund and Index-Tracking Collective Investment Schemes platforms.
Security law
The Vanguard spokeswoman said the departure from Hong Kong had “absolutely no connection” to the controversial National Security Law imposed on the territory by Beijing this summer.
“In fact, the decision to close the Hong Kong office predated the national security law passage, and is consistent with our longer-term strategic shift from institutionally-focused businesses to products and services focused on retail investors,” she added.
“We closed our Singapore office in 2018 as part of this evolution.”
Certainly, it would be perverse to shift headquarters from Hong Kong to Shanghai because of concerns about the extended reach of mainland China authority. Instead, the decision seems to be motivated mostly by the firm’s ability to sell funds to retail investors.
“Unfortunately, from a distribution business standpoint, the current industry dynamics in Hong Kong – and Japan – are better suited to institutional investors and do not support the scale needed for us to operate the economic engine behind our low-cost, individual investor-orientated model,” said the spokeswoman.
The ETF Connect, Wealth Management Connect and mutual recognition of funds (MRF) initiatives are “all positive developments, but these opportunities do not change the decision we have made”, she added.
China focus
Vanguard has been extending its footprint in mainland China, after little activity for two years since opening a wholly foreign-owned enterprise in Shanghai in May 2017.
Last December, it formed a joint venture with Ant Financial, owner of online platform Alipay, to advise on funds distributed to a retail market.
Vanguard believes it can contribute to the development of the country’s public fund market, “similar to the way we helped transform the mutual fund market in the US over the past four decades”, said the spokeswoman.
The firm is actively pursuing a mutual fund manager license which would enable it to offer public funds and serve retail investors directly, she added.
Scott Conking, head of Asia and a 36-year Vanguard veteran, will eventually relocate to Shanghai from Hong Kong.
However, the Hong Kong stock market will remain a critical component for Vanguard’s global diversified funds, and the Stock Connect and Bond Connect channels will provide them access to the A-share and China bond markets, the firm said.
“Vanguard continues to see Hong Kong as an important global financial centre and we cannot rule out the possibility of resuming services more aligned with our strategic priorities at a future date,” the spokeswoman added.
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