Many of the leading figures at China’s institutional investors, including large banks and insurers, are set to rotate jobs among themselves and with executives in state-owned enterprises and government organisations during this year, say experts.
The movements are set to reduce the level of new investment plans and mandates this year, while over the longer term it could cause some asset owners to shift goals or strategies as new leaders seek to make their own marks on these organisations.
An executive managing a commercial investment organisation may take up a new role in the ministry overseeing his company or relocate to become the head of a province, Collin Lau, founder of Hong Kong-based global real estate investment firm Bei Capital Partners, told AsianInvestor.
“It follows the five-year pattern [of the leadership reshuffle in the Communist Party]…the top, second, third-tier, fourth-tier,” he told AsianInvestor while attending the HKVCA Asia Private Equity Forum 2018 in Hong Kong.
Lau knows what he is talking about. He previously worked for sovereign wealth fund China Investment Corporation (CIC) between 2009 and 2012, where he was the head of global real estate investment and head of European private equity operation of. Before that, he had worked in Starr International and Baring Private Equity Asia.
The periodic rotation of jobs is a custom that can be traced back to ancient China. After senior leaders shift their positions, changes in their deputies ensue. There will be more personnel appointments and dismissals in financial institutions, state-owned enterprises and government departments this year, Xia Chun, chief research officer at Chinese wealth manager Noah Holdings, told AsianInvestor.
Chun said there is a higher chance that some younger ones will move up the career ladder this time, in part because a number of officials were taken down in Xi Jinping's anti-graft campaign in the past five years.
The make-up of the Politburo Standing Committee, the country’s most powerful decision-making body, changed following the 19th National Congress of the Communist Party of China (CPC) in October last year. The seven members of the supreme political body are, in order of seniority, president Xi Jinping, premier Li Keqiang, Li Zhanshu, Wang Yang, Wang Huning, Zhao Leji and Han Zheng.
The Chinese authorities want its officials to possess all-round talents, Xia said. For instance, chairman of the China Banking Regulatory Commission Guo Shuqing was previously governor of Shandong province, chairman of the China Securities Regulatory Commission, chairman of the China Construction Bank, and deputy governor of the People’s Bank of China, he said.
China's central bank is one place where senior promotions look set to happen soon. Governor Zhou Xiaochuan had said in October last year that he would likely retire soon. High-profile personnel changes are already taking place among other asset owners in the mainland.
Tang Zhigang was approved by the China Insurance Regulatory Commission to become the chairman of the pension insurance unit of the People’s Insurance Company (Group) of China on Jan 9. He was previously an executive director of the parent company.
Wang Sidong also starts serving as vice chairman and general manager of China Taiping Insurance since this month. He was previously non-executive director of China Life Insurance, according to media report.
Less is more
One net result of the executive reshuffling is that Chinese institutional investors’ investment activities, including their direct investments and handing out of mandates, will slow down, said Lau of Bei Capital.
Investment activities will only normalise after the rotation of jobs, probably in the last quarter of this year. State-owned enterprises’ outbound investments will also be lower, he said. China’s bureaucratic mentality in state-linked institutions means that individuals will be wary of the “personal liability” of making mistakes, which will lead them to err on the side of caution when it comes to decision making in a time of transition, he said.
“This is a very civil servant system," noted Lau. "People have to reshuffle their positions from time to time. And when you know that you are able to move to the next position, will you be very active in investing? You will not."
This is likely to mean asset owners in China this year do not offer many external mandates. Unlike their western peers, asset owners in China often prefer to use internal teams to invest over outsourcing.
Amid this time of staff changes the only fund managers likely to successfully gain mandates will be those that boast a strong track record, and enjoy trust from mainland asset owners already, which they can use to demonstrate their capabilities, Lau added.
He also said that asset owners in China will be most likely to seek external managers for the stock and bond as these markets can be very volatile. But they are likely to prefer co-investments or “club-investments” in the alternatives space.
“They also give [alternative investment mandates] to managers, but even [in] my day we were actively asking for co-investments,” he said.