Tencent, Hillhouse team up to help manage China's offshore trillions

Tencent Holdings Ltd. and Hillhouse Capital Management Ltd. are joining the throng of financial firms seeking to service the huge number of Chinese investors looking to diversify outside the mainland.

GaoTeng Global Asset Management Ltd., the duo’s one-year-old venture in Hong Kong, plans to start accepting money shortly from retail Chinese investors who have existing assets internationally, according to an emailed statement that didn’t provide an exact time frame. GaoTeng has gotten asset management and securities advisory licenses from Hong Kong’s Securities and Futures Commission. Its first product will be a fixed-income fund that will be open to individual investors in the city.

“We will be better able to serve Chinese clients because we understand Chinese clients better,” Wayne Bi, GaoTeng’s chief executive officer said in the statement. “We will design a select number of high-quality products that make sense for Chinese investors, helping them cut through a market that can often be homogenous and confusing to new participants.”

A weakening yuan amid escalating global trade tensions and domestic credit tightening is likely to spur Chinese interest in diversifying holdings outside the world’s second largest economy. China’s currency has depreciated 5.1 per cent against the dollar this year while the benchmark Shanghai Stock Exchange Composite Index is down almost 19 per cent in local-currency terms, making it the worst-performing primary share gauge tracked by Bloomberg.

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The popularity of wealth preservation and expansion in China has skyrocketed over the past few years as incomes rise and more people move to the big cities. Chinese citizens are expected to add more than US$1.9 trillion to their international investments in the five years through 2020, an Industrial Bank Co. and Boston Consulting Group Inc. report estimated in 2016. That growing appetite has already seen local wealth managers like Shanghai-based Noah Holdings Ltd. expand their product offerings to meet such needs.

Other large Chinese firms are already using their technological edge to help clients better manage their money. Jack Ma’s Ant Financial is selling wealth management products including those offered by some 116 mutual-fund managers in China, according to an August statement posted on its website. Ping An Insurance (Group) Company of China Ltd., meanwhile, generated 14 per cent of its first-half profit from asset-management businesses. Ping An also sells wealth management products online through its Lufax unit.

Hillhouse Capital was founded in 2005 by Yale University alumnus Zhang Lei with an initial US$20 million backing from an endowment led by Yale’s Chief Investment Officer David Swensen. It now manages more than US$50 billion and was an early backer of Tencent, the Shenzhen-based internet giant that operates the ubiquitous WeChat messaging service, along with games and payment systems.

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GaoTeng’s funds will invest in publicly traded securities internationally. Hillhouse won’t participate in the management of GaoTeng’s funds.

Bi, a former deputy general manager of Credit Suisse Group AG’s local venture with Industrial and Commercial Bank of China Ltd., has previously worked for companies including Vanguard Group Inc. and Wachovia Corp., according to his biography and LinkedIn profile.

Daniel Li, GaoTeng’s equity chief investment officer, has previously managed money for Millennium Management LLC and Goldman Sachs Inc. GaoTeng has also hired former Nomura Holdings Inc. Managing Director Desmond How to head fixed income, according to the statement. Chief Technology Officer River Cai, meanwhile, has led several departments within Tencent.

Alibaba is the parent company of the South China Morning Post.