Shanghai skyline

At one level, it can be argued – no, not really. The Pennsylvania-based group has long struggled to break into Hong Kong’s retail market. In a statement, Vanguard said it would, after an “extensive review”, wind down its local operations – a process that will take up to two years – and exit its exchange-traded fund business in the city.

In a filing to the Hong Kong Stock Exchange on August 26, Vanguard set out its position using some carefully crafted – and exceedingly bland – words.

The decision, Vanguard said, would let it expand into “international markets that offer the ability to directly reach individual investors… combined with access to the required scale and industry dynamics” that make the firm’s low-cost model work.

Or to put it another way, sorry Hong Kong, I’m afraid you just don’t cut it any more.

Growth potential

It was careful not to burn any bridges in the embattled former British colony. “[T]his move is not to suggest that we do not see growth potential in Hong Kong – quite the contrary,” Peter Zhang, a Shanghai spokesman at Vanguard, tells Euromoney.

The city is “an important global financial centre”, its stock exchange a key listing venue for Vanguard’s global funds, and the Stock and Bond Connect channels critical to providing access to China’s A share and bond markets, he adds.

Fair enough – but this isn’t just any old institutional investor walking quite slowly out the door: it’s the world’s second largest asset manager, with $6.2 trillion in assets under management at the end of January 2020.

For a city that’s just been through one of the toughest years in its history, this will feel like a real kick in the teeth 

And it isn’t any old city it’s being abandoned for, but Shanghai, the place long touted as Hong Kong’s obvious successor. A city that Beijing controls, isn’t unruly, and has the potential to emerge as a genuine financial hub for the 21st century.

It is hard to deny that the move makes good sense.

Back in December, Vanguard signed a wealth management venture with fintech and e-commerce giant Ant Group, which sucked in $300 million in assets within a couple of months of its launch. On August 25, Ant filed for a joint Shanghai-Hong Kong IPO, with the aim of raising $30 billion.

Engine room

The relocation also underlines the value of being not just closer to but inside the engine room of a country seeking to transform itself from an industrial giant into one driven by innovation and funded by increasingly efficient capital markets.

That means more full operating licences for global investment banks and asset managers. On August 24, China’s banking regulator approved a new wealth management joint venture owned by BlackRock, China Construction Bank and Temasek.

Hong Kong is not the only city in Asia to be abandoned by the investment manager.

Vanguard closed its Singapore office two years ago, and the current review will also see it shutter its sales outlet in Tokyo.

Hong Kong’s fund management association tried to rationalize it all, arguing that this is just one firm walking away, not a sign of an impending exodus.

But that is cold comfort. For a city that’s just been through one of the toughest years in its history, this will feel like a real kick in the teeth.