Chinese wealth manager Noah Holdings is adding new investment strategies to take advantage of potential corporate consolidation and bad debt opportunities in Europe, following the UK’s June 23 vote to leave the European Union.
‘Brexit’ has already forced down share valuations of UK and European companies and caused the value of sterling to fall. That has made companies in the UK and Europe cheaper for offshore acquirers. That is likely to appeal to acquisition-hungry Chinese corporates in particular – and it offers an investment opportunity for investors such as Noah.
"On the back of high volatility and uncertainty in Europe, we are seeing more Asian companies, in particular domestic Chinese companies, making global acquisitions," William Ma, chief investment officer for Noah, told AsianInvestor.
To prepare for this, Noah intends to add Hong Kong-based hedge fund manager Parantoux Capital to its fund-of-hedge-funds platform. Parantoux aims to launch an event-driven strategy fund focused on companies with China-related investments in the next two months. It is now awaiting its asset management licence from the Hong Kong Securities and Exchange Commission.
Event-driven investing seeks to exploit pricing inefficiencies that may occur before or after a corporate event, such as a bankruptcy, merger, acquisition or spinoff.
Before the Brexit referendum, European companies' valuations were high and companies didn’t need more shareholders but this sentiment has changed in the past weeks, Ma continued.
He thinks the potential of Asian (and in particular greater China) companies to acquire European ones will help enable them to gain international intellectual property rights, and advance their domestic China and European distribution networks, becoming truly global manufacturers.
"We are excited about this M&A trend and we are investing more in this type of event-driven funds," Ma said.
There are already signs that post-Brexit M&A is taking place. Yesterday, Japanese IT company Softbank agreed to buy UK chipmaker ARM for £32 billion ($42.4 billion). One day before Brexit, the deal would have cost $47.09 billion.
Noah has yet to allocate money to the Parantoux fund, but it plans to do so, as its high-net-worth clients have renewed interest in hedge funds post-Brexit.
Ma said Noah was also in discussion with other global multi-strategy hedge fund managers with event-driven allocation, with a view to add them to the platform. He declined to name these managers.
Bad debt drive
Noah also intends to add non-performing loan (NPL) funds to its product array, in the belief the negative economic impact of Brexit will cause more European companies to default on their debts.
"As a result of potential increase in NPLs, banks and other credit holders are more willing to sell existing NPL assets as a package at a deeper discount, which provide opportunities for NPL funds to acquire positions," Ma noted.
Ma said Noah could distribute these NPL funds directly, or manage them through a fund-of-NPL funds structure during the fourth quarter of this year.
He declined to name the NPL managers, but said these are the big global players. The major players in NPLs include Apollo Global Management and Oaktree Capital, the latter of which already provides a distressed strategy product to Noah.
In the Asia region, Ma said he believes long/short hedge funds have come onto the radar of global asset allocators.
“US is expensive in terms of valuation and Europe suffers from macro uncertainty. Asia provides opportunities. India, Vietnam and Indonesia in particular are seeing substantial consumption growth, valuations there are not demanding and the fundamentals are thriving. We expect more money to flow back to Asia,” Ma said.
This expectation of such asset flows led Noah to launch a pan-Asia equity long/short fund of funds at the end of June. It incorporates 10-15 hedge fund managers, including Zaaba Capital, APS Vietnam Fund and Doric Capital.
The product, launched as Gopher Asia New Opportunities Fund, has the capacity to raise up to $1 billion from both Chinese HNWIs and global institutional investors. The minimum investment is $1 million for the institutional class.
The fund-of-funds comprised Asean-focused funds as well as single-country funds with a focus on India and Vietnam. Ma declined to provide the current AUM of this fund-of-funds, stating that Noah is still conducting road shows to raise assets.