Performance fees a drag on Value Partners’ 2018 profits

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But the firm’s mainland business is growing, with onshore AUM surpassing the $1bn mark.

Value Partners’ AUM declined 10% to $15bn in 2018 from $16.6bn a year earlier, according to the firm’s 2018 annual financial results.

Although the Hong Kong-listed firm saw net inflows of $1.2bn into its funds, AUM fell due to the negative performance of its products.

For example, the performance of its flagship fund, the Value Partners Classic Fund, fell 23.1% last year compared to net gains of 44.9% in 2017, according to the firm.

Additionally, the firm’s net profit plunged by a whopping 89% to HK$229.5m ($29.2m) from HK$2.05bn ($261m) in 2017.

The firm's net profits plunged by 89% in 2018

In January, the firm issued a profit warning to its shareholders about the expected profit decline. According to the firm, the decrease in profit was mainly due to a reduction in performance fee income.

Performance fees were down to HK$56.2m from HK$2.57bn in 2017, as most of the firm’s funds finished below their watermarks against the weak market backdrop, according to the annual report.

China business growing

Although the firm’s overall AUM was down, assets in the mainland were up 28% to $1.1bn, according to the annual results report.

“The growth was mainly underpinned by the winning of new mandates, strong flows into existing accounts and successful launches of private investment securities funds,” the report said.

Value Partners, together with Fidelity, leads foreign managers in terms of the number of onshore funds managed in China, with each having launched four products to-date.

The firm has also expanded its client base in China to retail investors after it received approval from regulators to distribute its first MRF fund in December.

The product, the Value Partners Classic Fund, is expected to be distributed across different channels, including banks, insurers, brokers and online platforms via its master agent Tianhong Asset Management. Tianhong AM is also the master agent for BEA Union Investment Management’s MRF funds.

The firm has also applied for its High-Dividend Stocks Fund to join the MRF scheme, the report added.

Alts focus

The firm also said it will ramp up its alternatives business.

In January, the firm launched its first Asia-focused private debt fund, which will provide an alternative source of financing for mid-sized Asian companies, according to the report.

It also expects to launch “in the coming weeks” its first China-focused private equity fund via the Qualified Foreign Limited Partnership (QFLP) programme in China. The QFLP licence enables firms to raise money from onshore and offshore clients for private equity projects in the mainland.

The firm partnered with Hong Kong-listed private education provider China Education to establish the private equity fund. The fund invests in China’s private higher education and vocational education sectors.

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