Beijing-based Harvest Fund Management has absorbed much of the Asian retail capabilities, personnel and assets of Deutsche Asset Management, via a newly formed Hong Kong entity named Harvest Global Investments.
Deutsche Asset Management (DeAM) owns a 30% stake in Harvest Fund Management, which manages about $29 billion as of end June.
This vaults Harvest into the lead when it comes to China's fund houses building cross-border businesses in Hong Kong. More about that in a moment.
For Deutsche Bank, the deal is a chance to wash its hands of retail funds management in Asia; its DWS brand has never really taken off in the region, and has been criticised at a global level by Deutsche group CEO Josef Ackerman. In February, Ackerman criticised both DWS and alternative investment unit RREEF for impairments stemming from losses in 2008, and spoke of the need to "reengineer" asset management.
DeAM subsequently lost many senior staff in Asia, with CEO Ed Peters leaving, reportedly to run his own fund, followed by co-COO Paul Klug's transferring to the private bank in Mauritius. Mark Cullen, who is based in New York as global COO, is now acting head of all DeAM business in Asia.
DeAM will retain its institutional business, its division managing insurance assets, a distribution team for global product, and RREEF. It will also hang on to its 60% stake in Taiwan joint venture Deutsche Far East Asset Management, Lastly it will retain DWS onshore businesses in Korea and India, but its pan-Asia investment capabilities have either been scaled down (such as when, late last year, it trimmed the fixed-income investment team in Singapore) or transferred to Harvest. It remains a sizeable player in Asia, with around 400 employees throughout the region.
So there are two stories here. First is that DeAM has gotten rid of the fixed costs of a pan-Asia asset management business that observers outside the firm say was not successful. This leaves DeAM to concentrate on a more compact business with institutions, in which presumably it can leverage relationships from the banking side, as well as some key markets for onshore business.
The second, more dramatic story is Harvest. Since last year, a handful of leading Chinese asset management companies, including China Southern and China Asset Management, have been setting up infrastructure in Hong Kong in order to manage QDII products, attract QFII mandates and gain overseas experience.
Instead of having to build a business from scratch, Harvest will now acquire DWS's Asian and Greater China equities investment capabilities and existing funds, and the people who manufacture, manage and sell them. Michele Bang, who previously has run DWS operations in Singapore, has transferred to Hong Kong to serve as Harvest Global Investments' new CEO. She will integrate the teams and help HGI become a regional fund house. Bang reports to Henry Zhao, Harvest CEO in Beijing.
The size of assets to be transferred was not disclosed (nor the terms for the people who have suddenly become Harvest employees) but this will give HGI scale, experienced fund managers and a track record that its competitors cannot match. A total of 10 DeAM staff have been delegated to HGI. The HGI platform is intended to go live in September.
Moreover this gives Harvest a chance to hit the reset button regarding its QDII fund track record -- which is not very impressive. Harvest made waves in 2007 by launching a blockbuster QDII fund that raised about $5 billion in a single day.
The performance hasn't matched the hype, however: in 2007 (the peak for global equity markets), it lost -49.94%, and only made 36.82% in 2008, leaving it in the red. Lipper says the strategy has lost -41.4% since inception. That strategy, according to Lipper, had only two managers: foreign advisors Alexander Branik, a Frankfurt-based emerging-market equities manager at DWS, and fund manager Li Kai (formerly a portfolio manager at DeAM). (DWS in Frankfurt says Branik is not associated with the fund.)
Now HGI can point to the DWS Asian and Greater China equity funds as part of its track record.
The deal also clears the way for Harvest to grow its regional business, as it won't have to worry about the retail arm of its foreign shareholder competing for mandates or resources. DeAM, meanwhile, retains its 30% interest in Harvest and will continue to benefit from its growth.
Liz Mak contributed to this story.