GF Securities Buys 20% of Value Partners

We still think Value Partners’ parent rating is Below Average.

Kate Lin 05.06.2023
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Value Partners Group (00806) announced today China-based GF Securities (01776) will purchase a little over 20% stake in the asset manager.

The deal is being made through GF Holdings (Hong Kong) Corporation, a wholly owned subsidiary of the Guangzhou-based securities brokerage, with the founding shareholders of Value Partners, Cheah Cheng Hye (also the co-chairman and co-CIO of Value Partners) and V-Nee Yeh. GF Hong Kong is expected to hold 20.20% of the asset manager and become the second-largest shareholder in the firm.

In a statement, Cheah said: “The partnership will not only significantly increase Value Partners’ reach to mainland Chinese investors, especially in the Greater Bay Area, through GF Securities’ strong distribution network, but also strengthen our investment capabilities across different asset classes in China.”

Cheah is confident that the collaboration with GF Securities as a strategic shareholder can generate synergies and bring long-term and stable returns to the company's shareholders and investors.

Value Partners Has a Parent Rating of Below Average

Samuel Lo, senior manager research analyst at Morningstar covers Value Partners and two of its fund strategies. He believes that more time is needed to see whether this will have any influence on Value Partners’ investment culture and practices, which come with long-term ramifications. As of today, Value Partners warrants a Parent rating of Below Average. To Lo, this rating reflects a range of deep-rooted issues within the organization, that a strategic partnership is unlikely to offset. 

In assigning fund company’s parent rating, analysts take a few angles, with the most important one being culture, as Morningstar believes culture is one of the hardest things to build in the investment world and thus the greatest moat in asset management. Analysts see culture in how long-term a company is focused, in how long managers and analysts stay, as well as in the firm ownership structure.

Lo says: “Value Partners’ roots have been in Greater China equities but it has been shifting its business strategies rapidly and expanding into asset classes beyond its core competencies… The ever-and fast-changing business strategy raises concerns regarding the firm’s commitment to generating long-term investor value.”

Lo takes the ETF business for example. First, it consolidated its product lineup, closing its global emerging market offerings and five of its six ETFs. More recently, it has renewed its interest in ETFs, launching a Shariah-compliant A-share ETF in Malaysia in July 2021, and listing the Value Partners EMQQ Emerging Markets Internet & Ecommerce ETF (03030) on the Hong Kong stock exchange in July 2022.

Lo is also concerned about the high turnover within senior corporate leadership. The past three years has seen the firm radically reshuffle its executive management members.

In October 2021, the firm hired June Wong as President, filling a role that has been vacated since ex-President and ex-CEO King Au’s July 2020 departure. Winnie Lam joined as COO in July 2021 to replace Icy Wong, who was the COO, CFO, and chief administration officer, marking the third COO change over the past two years. The firm has also hired new CFO Nikita Ng in July 2021 and chief risk officer David Wong in February 2022.

“The continued senior leadership turnover is less than ideal and also contributes to the firm’s fluctuating business strategies,” Lo adds.

Morningstar Has Also Downgraded a Value Partners Fund

Due also to concerns arising from high turnover, last month, Morningstar revised downward Value Partners Classic Fund, a Greater China equity strategy, to Neutral from Bronze across all share classes, except for the cheapest A USD share class, which remains at Bronze. The downgrade was a result of a downgrade in the strategy’s People rating to Average from Above Average.

On May 5, Lo noted the heightened instability in the investment team over the past year, which has dampened the manager research team’s conviction in the strategy. Citing the number provided by Value Partners, Lo says: “There have been 12 departures since our last review [in 2022], driven by a mix of voluntary and involuntary departures, and the team shrank to 26 members as of year-end 2022 from 34 a year ago.”

He continues: “Notably, out of 14 sector leads—a historically stable group of senior members who contribute their best ideas to a high-conviction pool – six left in the past year and were not replaced.”

At the review meeting conducted by Morningstar, Louis So, co-chief investment officer at Value Partners, told our analysts that the departing sector leads did not cover stocks in this portfolio and that the sectors remained well covered. Lo commented: “[The departing sector leads] nonetheless represent a loss in analytical resources which would likely impact the team’s ability to identify new investment opportunities and conduct bottom-up research.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
GF Securities Co Ltd Shs -H- Unitary 144A/Reg S6.90 HKD0.29
Value Partners Group Ltd1.71 HKD0.59

About Author

Kate Lin

Kate Lin  is an Editor for Morningstar Asia, and is based in Hong Kong

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