Hywin's winning UK strategy

After acquiring Azure Wealth, it now offers many tailored services to meet the needs of China's high net worth individuals

When London's renowned asset manager Azure Wealth was acquired by Chinese company Hywin Financial Holding Group in January this year, the news stirred speculation within financial circles about Azure's future.

If post-acquisition integration is challenging in general, it is even more so for the wealth management industry - an industry traditionally focused on serving highly cultured Western aristocrats and billionaires.

But nine months after the acquisition, the new Hywin team in London has not only maintained but grown its client base. Not only that, but noticeable synergy achieved in the integration process has attracted the interest of more London asset managers in exploring merger opportunities, and Hywin's team is now actively examining these offers.

"The huge, unbelievable high net worth individuals market of China has been very poorly serviced by anybody, so we believe being a part of Hywin provides great opportunities," says Chris Donegan, a founding partner of Azure, who is now a partner and chief risk officer at Hywin Wealth in the UK.

The huge market that Donegan speaks of is supported by statistics. Last year, a report by China's Industrial Bank Co and The Boston Consulting Group said the number of China's high net worth families was expected to grow to 3.88 million by the end of 2020, from just 2.07 million in 2015.

During the same period, China's personal investable assets were expected to increase from 113 trillion yuan ($17 trillion; 14.5 trillion euros; ￡12.7 trillion) to 200 trillion yuan at a compound annual growth rate of 12 percent. The investable assets of high-net-worth individuals will account for 51 percent of total personal wealth in China by 2020, the report said.

Hywin's strategy in the UK is simple. Leveraging on the Azure team's established investment experience and proven track record of investing in UK and European assets, Hywin helps its existing clients in China to increase their overseas asset allocation as a means of achieving diversification.

What made Azure attractive as an acquisition target for Hywin is Azure's contrarian investment philosophy, which means its managers invest in relatively safe assets to help its clients with wealth preservation. Although its portfolios would not generate the most impressive return in a boom, the real benefit is minimization of loss in a downturn.

This strategy suited Azure's traditional client base, many of whom are sons and daughters of rich families, who have inherited extensive wealth but have little ability to grow it through their own investment. Therefore, they have a low appetite for risk and cannot risk big losses during economic downturns.

Monica Lin, chairwoman of Hywin Wealth in the UK, says this contrarian strategy suits Chinese clients, too. "Many Chinese investors already hold a lot of high-risk, high-return assets, such as high growth companies' stocks, so investment through a contrarian strategy overseas helps them with diversification," she says.

Established in 1989 in Shanghai, Hywin Financial Holding Group has grown to employ more than 5,000 people in wealth management, asset management and other financial services in 50 cities in China. It has about 100 billion yuan in assets under management worldwide.

Although this may be small compared with other Chinese asset managers who specialize in serving institutional clients, it is considered impressive in the retail market. At its peak, Azure was advising on approximately $1.5 billion.

"Hywin's international expansion strategy is a natural step to serve our clients' needs. Many of our clients are already starting to invest overseas by themselves, and many are spending an increasing amount of time abroad," Lin says.

To better serve such a client base, Lin's team in the UK now also offers many tailored services to meet the needs of China's high net worth individuals, much like the service of a family office. Such services range from giving clients advice about immigration to tax planning to financing for property purchases.

For those Chinese entrepreneurs who are looking for British companies for partnership or investment, Hywin could even provide advisory services such as that of investment banking.

"We want to create comprehensive solutions and services for our Chinese clients, and make them feel more at home in the UK.

"Traditionally, many Chinese investors enjoyed returns less than the UK's local investors when they invested in the UK, and they have accepted this as a fact. But we want to change this situation. We strongly believe that Chinese clients should be able to enjoy the same return as any other investor in the UK market, because capital should not be restricted by nationality," Lin says.

Despite Azure's relatively recent history, its two founding partners - Donegan and Massimo Scalabrini - had many years of experience in investment and wealth management.

Donegan, who was once responsible for business risk management in the equity derivatives division at UBS, oversaw more than $67.2 billion in transactions in the United States and Europe in that role. Meanwhile, Scalabrini is a veteran private banker who spent 20 years with UBS, culminating in becoming desk head for Italy, Spain, Latin America and North America.

So when Donegan and Scalabrini created Azure in 2011, they were determined to make it successful. They did manage to make Azure grow, considering that the business made a profit of ￡67,000 ($90,000; 76,000 euros) in the financial year ending March 2016, and a turnover of ￡2.5 million in the same period.

What triggered the sale of Azure to Hywin was the fact that Azure's majority equity investor, a UK private family office, wanted to sell its stake in Azure. The private family office made a strategic shift away from the wealth management sector after buying Barclays' $50 billion global trust business.

Looking back at the acquisition, Donegan and Scalabrini admit that it did require a leap of faith to understand and accept that Hywin's acquisition was advantageous, but they are now fully convinced.

"We became persuaded because we realized that Hywin really cared about our people, about our clients, and shared our philosophy," Donegan says.

He recalls the Hywin chairman visited his team in the UK for one weekend just before the acquisition, and after one dinner he had a long chat with each Azure employee.

"The Hywin chairman spoke to each one of us, from the company secretary to the assistant. I loved the personal touch that meeting revealed. I've never seen that in a Western meeting. My experience was, he felt every human being was involved in the deal," Donegan says.

A human bond grew, and Azure's core team of around a dozen employees all decided to remain at Hywin after the acquisition. "That is so important, because when you're buying a people business, you are buying the people. No one left because we all felt it is a positive transaction, the opportunities we are working with are very exciting," Donegan adds.

cecily.liu@mail.chinadailyuk.com

(China Daily European Weekly 09/29/2017 page30)