(Bloomberg) -- Eastspring Investments and Barings LLC have been cutting jobs at their China hedge fund operations, highlighting the challenges global asset managers face in gaining a foothold in the 6 trillion yuan ($840 billion) local market.
Eastspring, Prudential Plc’s asset management arm, saw at least seven people, or almost a third of its onshore team, depart in recent months, according to people familiar with the matter. The company may shut some of its local hedge funds to focus on overseas markets, they said, asking not to be named because the matter is private.
Barings, the unit of Massachusetts Mutual Life Insurance Co. with $347 billion under management, has also reduced the team under its domestic private fund management license, the people said. Barings plans to put more emphasis on the outbound business through the so-called Qualified Domestic Limited Partners program, which raises money from local clients to invest in overseas assets.
The slumping China stock market in the past two years has weighed on the performance of many funds run by global asset managers, adding to challenges that include fierce local competition and limited brand recognition and distribution. While Bridgewater Associates LP has boosted its local assets under management to more than 30 billion yuan, the majority of foreign-invested players still run less than 500 million yuan, a minimum level needed to cover costs.
Eastspring didn’t respond to requests seeking comment. In an emailed reply to Bloomberg, Barings said its “onshore team resourcing has remained relatively stable as of today,” adding that its commitment to China, including the domestic and offshore businesses, remains unchanged.
Most of the foreign platforms have been “challenged” to grow fast enough to cover expenses, said Peter Alexander, managing director of Shanghai-based consultancy Z-Ben Advisors Ltd.
“Our assessment was that many would be required to seek additional capital from home office,” Alexander said. “Given both geopolitical and economic considerations, home office would simply reach a conclusion that the better option would be to just close.”
Read more: Bridgewater Widens Lead in China Race as Returns Outclass Rivals
Eastspring, the Singapore-based firm that runs $216 billion in assets, registered as a private securities fund manager in China five years ago. The foreign-owned business has $41.1 million in registered capital, according to the website of the Asset Management Association of China. The Shanghai-based unit had 17 employees as of Nov. 24, and manages less than 500 million yuan, the data showed.
Barings’s hedge fund unit has a staff of 14 and also manages less than 500 million yuan, according to AMAC. Its QDLP business runs between 2 billion yuan and 5 billion yuan.
The downsizings signal that some global managers are pivoting to the QDLP that invests Chinese clients’ money overseas, where these firms have advantages over domestic rivals, the people said. They also need to give local teams more power to make decisions on the mainland rather than managing it from Hong Kong, Singapore, the US or Europe, one of the people added.
“We have been identifying various investment strategies to satisfy the needs of both onshore and offshore clients,” Barings said in the reply. While engaging in cross-border investments in China for more than a decade, the company “gained experience in local investment management and onshore product issuance.”
Returns Trail Index
Eastspring’s first stock fund, launched in April 2019, lost 13% since inception as of Aug. 25, twice the decline of China’s main CSI 300 Index, according to data from Shenzhen PaiPaiWang Investment & Management Co. A bond fund started in October 2021 has gained an annualized 4.6%, the data showed.
Barings’s stock fund launched four years ago posted a loss of 12% as of Nov. 10, according to PaiPaiWang. A fixed-income product gained 13% since inception in May 2019.
The going could get tougher, especially for smaller players as China revamps rules for the industry. Thousands of funds may be shut as regulators impose a new 10 million yuan asset minimum on products, along with other curbs, Bloomberg reported in August.
Read more: Global Hedge Funds Push Back Against China Draft Rules
Some 38 global firms have set up wholly owned hedge fund units in China after the nation eased rules in 2016. While they managed a combined 67 billion yuan as of Dec. 31, many of the assets were held by big players like Bridgewater and quant giants Two Sigma Investments LP, D.E. Shaw & Co. and Winton Group Ltd.
“Our expectation was for several global groups to exit” the domestic private fund business, Alexander said, declining to name any firms. “Operating conditions remain just as difficult,” and many companies are capital constrained.
©2023 Bloomberg L.P.