APG and E Fund Management are cautiously exploring the possibility of opening their €900m China A-Shares strategy to like-minded institutional investors and are already in discussions with one entity, according to both organisations.
The strategy has returned 10-12 percentage points above benchmark on an annualised basis since inception, and currently holds around 27 stocks, according to Ronald van Dijk, deputy CIO at APG. The strategy was billed as China’s first concentrated equity fund with an ESG focus when it was launched in September 2017.
“We would like to potentially open to like-minded investors inside China and also outside of China,” said Sau Kwan, president and head of global strategy at E Fund Management.
Van Dijk said one or more large external co-investors would bring scale and engagement clout to the portfolio.
He confirmed that APG and E Fund are already in discussions with at least one institutional investor, which he did not name: “We are having talks but it’s at early stages because the track record is short.”
He added: “We are not a commercial party. We don’t have a sales team as we are a not-for-profit, so we are really doing this for the investment side.”
The approach is cautous: ”It is an investigation where we tread carefully and where it will take time getting to know to each other first,” said a spokesperson for APG.
The equity strategy is co-managed by APG and E Fund, with two portfolio managers and one ESG analyst each. The APG staff are based in Hong Kong and the E Fund staff in Guangzhou.
“APG and E Fund work together with strategic alignment and when we speak to other asset owners we do that together. We present ourselves together and we act as one,” van Dijk said.
In an interview in the May edition of IPE magazine, APG lead portfolio manager of China A-shares, Kathy Xu, pointed to positive engagement results in related party transactions, in increasing disclosure on supplier frameworks and in discouraging investment of free cash flow in risky wealth management products.
APG and E Fund entered into a cooperation agreement in 2016. In 2019 also the duo launched an China onshore bond strategy.
E Fund acts as an adviser to APG for the fixed income strategy, which has two dedicated Hong Kong-based APG portfolio managers and two analysts based at APG’s offices in Beijing, the location of E Fund’s fixed income team.
As with the equities strategy, the bond portfolio is also concentrated with around 20 issuers, of which 50% are quasi government entities and the others corporate issuers.
With €568bn in assets under management, APG is one of Europe’s largest pension asset managers. Guangzhou-based E Fund Management is one of China’s largest asset managers with CNY2trn (€260bn) under management.
For more see Perspective, IPE May 2021