Harvest Fund Seeks Offshore Growth as China Investors Flee Rout

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(Bloomberg) — Harvest Fund Management Co., one of China’s largest mutual fund managers, is seeking to capture rising demand for cross-border investments as the local stock market struggles with prolonged declines and Chinese investors chase offshore assets with higher returns.

The company has almost depleted its $4.2 billion of quotas under the Qualified Domestic Institutional Investor program that allows locals to invest abroad, and plans to work with partners that still have unused quotas and clients with offshore assets, according to Kevin Shu, chief marketing officer of Harvest Global Investments Ltd., the Hong Kong-based international arm.

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To better serve international clients, including those investing in China, HGI is “optimizing” staff to cut costs in Hong Kong. It plans to add new jobs as soon as the middle of this year, he said by phone without giving numbers. The firm is looking for senior professionals familiar with both domestic and foreign markets to join its investment and marketing teams, and aims to hire bilingual trainees to gradually expand, he said.

Shu denied a Reuters report this month that HGI cut more than a third of its staff of about 40 in Hong Kong and planned to wind down retail funds in the city and Europe. Any speculation of retreating from Hong Kong is “groundless,” and the reported number of layoffs was inaccurate, he said, adding the job cuts were “normal personnel turnover.” 

China’s 27 trillion yuan ($3.8 trillion) mutual fund industry is struggling to bolster performance amid persistent market declines. The the CSI 300 index is down almost 5% already in 2024, after declining for three straight years. Investors are flocking to other markets like Japan, forcing China Asset Management Co. to suspend trading in its Japan ETF after the price surged. 

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“We’re going to strengthen our services and registered staff in Hong Kong, market our best China assets to foreign investors while channeling Chinese clients’ money offshore,” Shu said. 

Harvest Fund managed 545 billion yuan in non-money market funds as of Sept. 30, making it the sixth-largest mutual fund company in China. The firm runs about $210 billion overall, and has offices in New York and London, according to its website. 

As part of the overseas push, Harvest Fund plans to appoint Han Tongli, a managing director, as chief executive officer of HGI, replacing Thomas Kwan, according to a person familiar with the matter. The company declined to comment.

While many foreign investors have been shunning Chinese stocks in recent years, Shu said some are starting to look at Chinese assets again as valuations become attractive. A South Korean institution is coming for a due diligence meeting soon, and a “top-tier” Middle Eastern client plans to visit the company in Hong Kong next month, he said. 

“I hope this year will see a major turnaround” in the firm’s international business, Shu said. “We have strong confidence.”

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After working for Fidelity Investments Canada and a Canadian pension fund, Shu joined Harvest Fund in 2009. He’s helped lead the firm’s international business since 2012 and built foreign client assets to $12 billion. He moved to Hong Kong in 2019 as the company sought to boost overseas operations. 

Key foreign institutional clients have stayed with Harvest even as some trimmed investments amid the market volatility and geopolitical tensions, Shu said. Many of them have been telling him they still need China allocations for the long term and would increase holdings once the Chinese market recovers.

“They just need some catalysts,” he said. 

—With assistance from Dong Cao and Jackie Cai.

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