The $70 billion pension fund of US aerospace company Lockheed Martin is closing its office in Hong Kong amid US-China tensions, bucking a rising trend for big institutional investors to set up or expand teams in Asia. 

Most of Lockheed Martin’s Hong Kong investment staff are believed to have already left, with Joe Chang, formerly head of Asia private investments, the latest to do so. In December he joined AlpInvest, a Dutch private equity fund-of-funds house, as Hong Kong-based principal for primary fund investments.

A Lockheed Martin spokeswoman told AsianInvestor by email: “Earlier in 2019, there was a strategic shift in focus to relocate the Hong Kong office to our company headquarters in Bethesda, Maryland, which prompted an office reorganisation.” 

She declined to comment further on the precise date of the decision or the rationale for it. Nor would she provide details of employees who had left, how their functions would now be dealt with or the previous office headcount.

Lockheed Martin Investment Management's small public equities team in Hong Kong had left in early 2019, an industry source familiar with the pension fund said. It is understood that there is just one individual still left in the office, but AsianInvestor could not ascertain their identity, nor the precise previous size of the team. 

Chang's exit may well have been an added spur to LHIM's decision to shut the Hong Kong branch, the source added on condition of anonymity.

Joe Chang

The closure comes some 12 years after LHIM opened the office with the public equities team, thereby becoming a pioneer among US pension funds in having a presence in the region. Denis Tse then joined in mid-2009 as head of Asia private investments and was succeeded by Chang in mid-2016.

The pension fund's Asia asset exposure is thought to comprise mostly public and private equity assets, the source said.

Lockheed Martin as a group has offices elsewhere in Asia, including in India, Japan, Singapore and Taiwan, but Hong Kong is its only pension investment office in the region.

Chang could not be reached for comment.

NEW ROLE

In his new post at AlpInvest, Chang is understood to be responsible for assessing and executing fund opportunities in Asia. He is a senior addition to the existing regional private fund investment team. 

AlpInvest has also added two other employees in the region in the past year, an industry source told AsianInvestor on condition of anonymity, without identifying them. The source said the appointments reflected continued growth in global demand for private equity investments in Asia.

But AlpInvest also lost John Kim, formerly a principal for co-investments, to Canadian pension fund manager PSP Investments as it established its own Hong Kong office early last year.

AlpInvest, which has $42 billion under management and is owned by US private equity giant Carlyle, declined to comment when contacted by AsianInvestor.

The firm has been investing in Asian private equity since 2002, set up primary fund and co-investment teams in Hong Kong in 2006 and has had a secondaries investment team there since 2012. 

Before joining LHIM, Chang had worked at Mercer Investments as chief representative for its Asia private markets business. He previously held direct investment roles at EQT Partners and Sumitomo Corp.

POLITICAL PRESSURE

It seems likely that the recent rise in tensions between China and the US will have been a factor in LHIM's decision to shut its Asia branch, especially as it is investing for the retirement scheme of a US company focused on defence and security. The Lockheed Martin spokeswoman again declined to comment when AsianInvestor raised this issue.

Some US politicians, and some individuals aligned with President Donald Trump, have in recent months raised the pressure on domestic corporates and institutions to scale back or stop investing into China amid the spat between the world’s two biggest economies.

For instance, certain American senators including Republican Marco Rubio last year sought to prevent the Federal Retirement Thrift Investment Board from switching some $50 billion into stocks mirroring the MSCI All-Country World ex-US Investable Market Index. Chinese companies make up 7.6% of this benchmark. The $590 billion state fund has nonetheless reportedly chosen to press on with the strategy.

Similarly, other US asset owners remain keen to increase their exposure to China and the wider Asia region. And several are establishing or expanding regional branches to do so.

The Teacher Retirement System of Texas aims to open an office in Singapore to oversee its $22 billion of assets in Asia. It is taking the $153 billion pension plan longer than it expected to do so, chief investment officer Jase Auby said earlier this month, without elaborating on why.

Industry observers have pointed out that it is politically hard for American retirement schemes to justify big spending on investment professionals, let alone the major outlay that a new office in Asia would require. The recent rise in China-US tensions – not to mention the Hong Kong protests and the coronavirus outbreak – will not have helped their case.

Other Western pension plans have been more assertive in expanding into Asia. Those building up regional allocations and physical presences in the region include the Netherlands’ APG and Canada’s Ontario Teachers’ Pension Plan, Canada Pension Plan Investment Board, La Caisse de Depot et Placement du Quebec and PSP Investments.