One of China's biggest asset managers is looking to bring China and Asia-focused mutual funds to U.S. institutional and retail investors.
Harvest Fund Management, which manages some $50 billion in assets, last month announced a joint venture between its international subsidiary, Harvest Global Investments, and Jonathan Krane, who founded Krane Capital in 2009 to advise Chinese and U.S. investors on cross border transactions, to create Harvest Krane. The venture is based on the continued Chinese growth story and the increasing demand and realization among U.S. investors to capitalize on it. "We saw U.S. investors long being interested in exposure to China, the second-largest economy, which will likely become the largest in coming years," said Krane.
Harvest Fund Management has more than 500 person network of employees and over 100 investment professionals in China and Hong Kong.
The firm works with eight million customers including major Chinese institutions, such as the China Investment Corporation, the country's sovereign wealth fund. Indeed, a local presence is essential to hit the ground running in this burgeoning market, according to Krane.
"The growth trends here are very attractive. Lots of companies in China are going public or about to go public-we need to be in this space to be successful in the financial products area," Krane said.
"Harvest has researched and invested in China's biggest companies for years, providing our investors with an unparalleled advantage in Chinese investing," he said.
The firm's first offering in the U.S. is the Harvest Funds Intermediate Bond Fund (HXIIX), advised by Harvest Global Investments. Its objective is to seek long-term total return through a combination of capital appreciation and income by primarily investing in investment grade and high-yield, high-quality China bonds, marking the first time that an investment product actively managed by a Chinese asset manager is available in the U.S.
The fund primarily bets on a portfolio of fixed income securities and targets an average historical credit quality of no less than BBB.
With the U.S. experiencing historical lows in terms of spreads and interest rates, the U.S. market is starved for yield, according to Krane,.
The end goal, of course, as all investors champion, is diversification. "We want to meet the need for reasonable income in the U.S. while providing additional diversification through exposure to a bond category that historically has been underrepresented in US fixed income portfolios," Krane noted.
He also added that the firm will be launching a China All-Asset Fund, which will invest in China-linked stocks and bonds, as well as an equity product sometime later this year.
Baby Boomers are a key target group for Harvest Krane. That's because more than 70 million people are retiring in the U.S. within the next 16 years and they need income to last, according to Krane. "Most people already recognize that China is on a secular trend-in five-to-12 years, China may surpass the U.S. as the largest economy in the world," he said, citing various predictions by the International Monetary Fund.
Also, most U.S. investors are under-allocated to China and Asia, particularly in light of China's growing role in the global economy, hence the opportunity for Harvest Funds to close that allocation gap.
"We are delivering to the U.S. investor community income and growth opportunities from the Chinese and Asian capital markets, leveraging our local Chinese research and managers. Surprisingly, there's still very little exposure to portfolios in the U.S. to anything that's China-based," he said.
Despite China having being closed to outside investors, markets have eased up considerably over the last few years as part of its initiative to become a major financial market in the next decade, according to Simon Arrata, who recently joined the firm after 13 years with Fidelity Investments to head Harvest Krane's distribution and marketing efforts.
"China has a new central government with a new five-year plan: As a country, they are transitioning away from a traditionally export-based economy to an internal consumption economy, much like the U.S.," said Arrata.
"Simply put, the Chinese government has signaled it wants to be international, which will enable more foreign investments," he said.
He also noted that China has begun to take action around corporate governance, transparency and communications at a corporate level to encourage foreign investment and development. And the country wants to internationalize its currency in order to attract investment and drive domestic purchasing power. "The government is permitting the Renminbi to continue its steady appreciation over time in order to attract global investment in the currency itself as well as drive domestic purchasing power," said Arrata. As China opens up its mainland market, Arrata noted that foreign investors will need the help of local asset management shops to navigate the new terrain.
"If we're going to bring products from China to the U.S., our goal is to combat the current low interest rate of today," said Krane.
"As we continue to bring additional products from China to the U.S., our goal is to continue to be thoughtful about what products we bring and insure that each product addresses a need for U.S. investors, such as retirement income and diversification."