Executives at Edinburgh-based Baillie Gifford, like many other fund managers, recognize the need to have a field presence in certain markets, namely mainland China.
Last year, the company registered as a private equity fund manager in China and opened an office in Shanghai. When news of its new office broke in September, the company said it managed around £ 45 billion ($ 63.4 billion) in Chinese equities, equivalent to around 17% of total assets under management at the time, the new office allowing it to invest in more Chinese securities. companies and the new license allowing the launch of private strategies with Chinese investors.
But as of Dec.31, only around 1% of the total AUM was managed on behalf of clients based in China, including Hong Kong, up from 0.53% as of Dec.31, 2019, according to Pensions and investments‘The data.
“The China office was created in the first place because we think there are a lot of very interesting companies being created in China, and although we are happy to be here in Edinburgh… in the case of China, we thought we needed to be closer, especially to build relationships with academics (and) clients, ”said Stuart Dunbar, Edinburgh-based partner. “We thought it was better to start learning. I’m not even sure now it’s a commercial venture … it’s a better cost of investment process.
The company recently launched its first qualified domestic limited partner fund, which allows foreign fund managers to raise funds from institutional and high net worth investors based in China. The global equity strategy for domestic Chinese investors was launched this year at $ 90 million. Partner John MacDougall moved to Shanghai in September 2019 as president and chief strategy officer for China, and the company has around 14 people there and expects growth “modestly in the light of progress.” Mr Dunbar said.
The company’s approach to its activities in China stands out. Peter Alexander, Founder and Managing Director of data analytics and consulting firm Z-Ben Advisors Ltd. in Shanghai, said the company “came out of nowhere a few years ago and announced that it was increasing the registered capital of its investment to $ 500 million. RMB – about $ 70 million,” Mr. Alexander He said that figure, at the time, was “a huge line in the sand – (they were going to) really do great things here.” However, what the company has done so far seems small, he said, with one product from a qualified national sponsor.
“Where I think they deserve to be congratulated” is Mr. MacDougall’s relocation to China. “We have always been big supporters of your desire to want someone who knows the organization as well as the Chinese market, because there are significant cultural differences between running a local business here” in China and elsewhere .
Z-Ben’s advice is generally to have a co-CEO role in China.
Baillie Gifford now faces two major hurdles in the marketplace: first how they conduct their business and not just by bringing in “proven and genuine” business approaches that have worked in other markets and trying to “activate them by China, ”Mr. Alexander said. . “It usually won’t work. We’re by no means supporters that you have to do it the Chinese way – that won’t work either. They’re going to have to make some amendments and be comfortable being badly. comfortable in certain areas to compete locally. “
The second complication is that organizations launched private funds and businesses “even before the private funds market opened” in China. Companies have hired talent, but the platforms remain intact. “In eight months, most of the year, more and more very talented local people have come to see me, just extremely frustrated. They didn’t join the cabinet to spend 50% of their time educating people about China, ”Alexander said. Baillie Gifford won’t be immune from this as far as he can see.
Regardless of the company’s approach to China, the road will be difficult. “The Chinese market is littered with people who fly too close to the sun – you need great humility and rhino skin. If you don’t have those two things, don’t come,” Mr. Alexander, although added that Baillie Gifford has “a lot to gain” in the market.