Value Partners

Small players battle for life

PUBLISHED : Friday, 06 February, 1998, 12:00am
UPDATED : Friday, 06 February, 1998, 12:00am

The managing director of a Hong Kong 'boutique' fund manager believes half the specialist managers in Hong Kong are threatened with closure or merger.

Value Partners managing director Cheah Cheng-hye said the companies' high concentration of assets in the region's markets had jeopardised their future.

Mr Cheah, who manages assets of about US$140 million, said his company was trading well within the safety level, but he believed many of the estimated 25 specialist companies were struggling.

The companies under threat typically employ less than 15, have one fund manager of note and less than $200 million under management.

Some of the single-product groups have less than $20 million.

Most of the groups generate their income from a combination of annual and initial charges, with some imposing performance-related fees.

Problems have arisen because a high concentration in Asian stocks has resulted in net asset values tumbling by up to 60 per cent.

Many funds have also been hit by high redemption levels, as advisers or investors move to cut their losses rather than retain holdings in the hope of a turnaround.

Mr Cheah said: 'While it is a case-by-case basis, the majority of firms are facing difficult times.' The initial response of most struggling fund-management groups to problems will be to cut back on costs. This will be followed by overtures to other fund-management groups for a merger.

If both strategies fail, then a company must either hope for a turnaround in the markets and in investor sentiment or face closure.

'I know of two or three very dicey cases. It is touch and go whether they will survive,' Mr Cheah said.

The boutique operations sprung up during the bull markets of the past five years and are mainly run by Hong Kong managers.

Their rationale for existence was that they would be able to offer either better service or performance than the traditional, typically Western, fund-management company.

Mr Cheah said: 'They are a symptom of the good times. They sprung up like spring flowers.' A high concentration of their funds in local markets has meant that they have been hit hard by the downturn and do not have the resources to sustain a prolonged downturn.

Mr Cheah said: 'In general, the loyalty has not been as strong as we would have hoped. Many who recommended the funds are investment professionals acting on behalf of clients, so they face their own pressures.' Dresdner RCM Global Investors Asia marketing director Mark Konyn said: 'Mid- to small-sized players have gone into this crisis and will not emerge.'