The recent exit of three executives from Hong Kong’s Value Partners, most notably sales head Eric Poon, shows that the asset manager’s woes still linger after a slump in profits.
What happens next is unclear but after heavy senior staff turnover in the past two years, plus recent changes of responsibility at the top level, speculation about the future of the retail business-heavy firm continues to swirl.
Poon left in January just a year after joining Value Partners, a company spokeswoman told AsianInvestor. His regulatory licence ended in April.
He had replaced Wayne Shum, who had only spent some nine months at Value Partners after being hired amid a shakeup by chief executive Au King Lun in May 2017. The spokeswoman said that the firm hadn’t identified a replacement for Poon and would not look to fill the position in the interim.
Both Poon and Shum are institutional business specialists – having headed that area of coverage at their previous fund firms, Barings and BOCHK Asset Management, respectively.
Yet building an institutional client base takes years, so neither man would have had sufficient time to make decent progress on this front before they left, one industry consultant familiar with the firm told AsianInvestor on condition of anonymity.
Two other sales executives have also left Value Partners in recent weeks. Associate director Yuan Boa and manager Sam Lo moved on in late March and early April, respectively. In these cases the company is looking to hire replacements, the spokeswoman said.
Lo has since joined Goldman Sachs Asset Management's retail client business team, a spokeswoman for the bank told AsianInvestor, which could not ascertain Boa’s next destination.
These departures come after the company’s net profit 2018 plunged 89% in 2018 to HK$230 million ($29.3 million), according to its annual results announced in March. In the same month, Value Partners appointed company founder Cheah Cheng Hye and Louis So – the firm’s co-chief investment officers – as co-chairmen. The titles were approved on April 26 at the company's annual general meeting.
The recent developments underscore a widespread belief that Value Partners seemingly hasn't made the progress it had hoped in building up its institutional client base, and that Cheah wants to partially or wholly sell the business and retire in the not-too-distant future.
The company is at pains to state that Cheah has no immediate retirement plans. The spokeswoman said the founder, now 65, “doesn’t plan to retire any time soon and remains actively engaged with the company on a full-time basis”.
She added that the co-chairmen appointments form part of its succession planning initiatives, which date back to 2012 when So was named deputy chairman. While there is no clear division of duties, the spokeswoman said, So will be more involved in the daily operations of the group while Cheah focuses on strategic matters.
The division of duties underlines So's increasing importance, as does his receiving 18 million share options in October (while chief executive Au King Lun received 1.5 million), noted the consultant familiar with the firm.
So has been with the firm since 1999 and oversees all group affairs and activities, daily operations and management of the firm’s investment management team. He is very close to Cheah and has been key to the success of the equity products over the years, the consultant told AsianInvestor.
Fixed income chief investment officer Gordon Ip is also a key and long-standing member of the team, the consultant added. Ip has been with the firm since 2009.
ON THE BLOCK?
While Value Partners has a succession strategy in place, industry observers and sources familiar with Value Partners told AsianInvestor they believe Cheah would be willing to sell the firm – at the right price. (The firm’s share price closed at HK$5.88 on May 2, having risen a little over 10% this year.)
Cheah and co-founder Yeh V-Nee between them hold 41% of the company, and they were willing to conduct an attempted sale of a stake to Chinese conglomerate HNA Group. That deal fell through at the start of 2018, and there have been no signs of a serious replacement suitor since.
Value Partners could well seek to sell to a high bidder but there are not many prepared to offer the current valuation, a Hong Kong-based banker said. He estimated the price tag to be its market capitalisation plus 30%. "Most likely a mainland [Chinese] bidder will try to buy. Western firms are cash-strapped,” he added.
Yet Value Partners would make an attractive target for a European or US firm looking to get a foothold in China, the consultant familiar with the company told AsianInvestor. It has a wholly-owned foreign enterprise in Shanghai, a private fund management licence allowing it to manage and sell funds onshore, and individuals with substantial expertise of domestic Chinese bonds and equities.
“[Value Partners] has always had the potential to be a bigger asset manager. It should have a goal to get from $15 billion [in AUM] to $30 billion and then to $50 billion, $100 billion and beyond,” said the consultant.
That's an ambitious goal, at a time when it's becoming harder for mid-tier fund houses to survive in the current environment. A combination of greater cost pressures, lower returns and lower fees has fed the ongoing trend towards consolidation.
Value Partners has survived so far through organic growth, to see assets under management reach $17.7 billion as of March 31, up from $13.2 billion at end-2016. But that might not be enough for the future.
To achieve its potential, Cheah and his new co-chairman need to either find a buyer or settle on a team and strategy to build out such as by acquiring teams and assets, said the consultant familiar with the company.