Daily Management Review

Rich Chinese Increase Their Search For Foreign Investment Bets To Reduce Domestic Risk


Rich Chinese Increase Their Search For Foreign Investment Bets To Reduce Domestic Risk
According to fund managers and industry sources, wealthy Chinese individuals are reducing their holdings of domestic securities and are increasingly considering assets in the United States and other foreign countries. This trend is expected to pick up steam in 2023.
Rich Chinese have reportedly grown more concerned by the hazy outlook for a domestic economy dealing with COVID disruptions as well as the geopolitical repercussions of Russia's invasion of Ukraine on China after suffering significant losses this year.
Hedge funds with Greater China strategies have lost 12.9% for the year to end-November, on pace for their worst year since 2011, according to Eurekahedge data, underscoring the dire return prospects at home.
According to asset managers, wealthy Chinese are also concerned about Xi Jinping's "common prosperity" initiative to lessen income inequality and are looking at overseas private equity and real estate investment opportunities in nations like the United States and Japan.
Investing outside of mainland China is not a recent trend, but a sizable portion of that wealth has typically been put into Chinese assets like Chinese securities listed on offshore markets.
"Previously, the wealth creation for these people was not (about) buying American stocks, or buying American real estate...it is starting to change," said Jason Hsu, founder and chairman of Rayliant Global Advisors.
According to him, the Boston-based asset manager has been receiving numerous inquiries from family offices in Greater China seeking information on American economic policies and investment guidelines.
One Hong Kong-based portfolio manager for a family office with more than $1 billion in assets told Reuters that he reduced the exposure of his portfolio to Chinese assets from 80% at the end of last year to just 30% now and plans to cut it even further.
The portfolio manager, who requested anonymity because the subject is sensitive, has instead increased investment in venture capital as well as the energy and real estate sectors abroad, particularly in Japan and the US.
A managing partner at a different Chinese family office that manages more than $1 billion said his company spent "a significant amount of time" researching money managers and investment possibilities in Japan and the US while also keeping an eye out for opportunities related to China's reopening.
According to an email reviewed by Reuters and two sources familiar with the situation, the U.S. consulate in Hong Kong held two virtual meetings in October and November to connect family offices based in Greater China with U.S. money managers, underscoring the increased interest.
In one of the meetings held last month, former Google CEO Eric Schmidt's family office manager Ken Goldman and Greenlight Capital president David Einhorn, who made his name by shorting Lehman Brothers, were both invited.
According to the U.S. consulate, it frequently explains American economic and investment trends to a wide range of audiences. Einhorn did not respond to questions from Reuters, but Goldman claimed to have been present.
According to Eva Lee, head of Greater China equities at UBS Global Wealth Management Chief Investment Office, wealthy Chinese may have made significant profits from their home market in recent years, but they now realize that this strategy does not always work.
"Investors have learned a lesson this year, they realised diversification is just so important," she added.