Hywin: Unleashing the Power of Partnerships

Hywin Holdings is a Nasdaq-listed leading independent wealth manager in Greater China, trading under the symbol HYW. Hubbis recently caught up with Dr. Nick Xiao, CEO of Hywin International (the Hong Kong subsidiary of the firm) to hear more about how Hywin is elevating its proposition by looking beyond the immediate challenges and opportunities to future-focus its business model in alignment with key regional and global trends. He explained how Hywin is a well-regarded “gateway” between the domestic and offshore markets, how the firm has built a formidable reputation in private assets, why Hywin pursues partnerships, and why Hywin is the ideal conduit to match international asset managers with the vast reservoirs of Chinese private wealth.

Hubbis: How has Hywin fared as a public company since its listing in early 2021? Has the worrisome Sino-US dynamics impacted market sentiment?

Nick Xiao: I must say Hywin has been generously rewarded by our listing on NASDAQ. Our international visibility has hugely increased, and our governance, operations, and financial results have been commended by global investors, analysts, and financial media.

Hywin is a top-three independent wealth manager in China, with 2,500 people across 180 business locations serving 140,000 HNW clients. This means 5% of China’s total high net worth population are already being advised by Hywin across investing, succession planning, and a variety of other topics.

As Chinese clients continue on the secular trend of unlocking wealth from real estate and investing it into public markets, and increasingly, private markets, Hywin is well positioned to capture an ever larger share of the “wealth on the move”.

Also, exactly because clients with substantial wealth are facing uncertainty and complexity, and every decision matters, Hywin’s holistic, intellectually-driven, and careful approach suits them very well.

As to geopolitics, I think it’s another kind of “volatility” that wealth managers and their clients must analyse, incorporate into decision making, and live with. Hywin believes in the saying by Warren Buffett that the capital market is a weighing machine over the long term. With our expanding franchise and increasing profitability, I am sure Hywin as a company and as a stock will continue to be appreciated by investors.

Hubbis: Specifically, what do you think is unique about Hywin and that should capture institutional investor interest?

Nick Xiao: We have a history of growth and stability. We are perhaps one of the few private enterprises in China that have maintained the same shareholding structure and an unswerving commitment to the same client franchise for so many years. Hywin offers a strong track record of delivering results, year after year, as well as a growth trajectory that’s strategic, sustainable, and riding on mega-trends.

One nuance I often share with investors is that Hywin caters, exclusively, for high-net-worth clients and professional investors. This means stickiness of relationships and strong revenue potentials. But it also means Hywin won’t be operating in the mass market with “phenomenal disruption” or “blockbuster products” that could be perceived as “systemic”, if you know what I mean.

As a non-bank, non-broker wealth manager, Hywin doesn’t have large capex or put the firm’s capital at risk. We advise and execute. We manage assets and deliver portfolio performance. We don’t do balance-sheet business. This means the ROE is high and the principal risk is minimal. These attributes are really applauded by investors.

Nick Xiao with Dixon Wong of InvestHK

Hubbis: There are obviously current and future challenges. Growth is slowing globally. Liquidity is tightening. And some international investors may say China has not been as predictable as people had hoped. How does Hywin address some of those challenges?

Nick Xiao: Hywin is unique in that our business model has a natural hedge against adversities in the macro environment. For example, if China appears to be slowing, the result is that more entrepreneurs and wealthy individuals want to preserve more of their wealth, want to find interesting insurance solutions, want to diversify towards global allocations for their portfolios, and they will want to focus more effort and more resources on their family offices, family foundations and trusts. All these tendencies will come to the fore in a slowing and maturing economy, and we will be there to take full advantage and deliver solutions for these clients. On the other hand, if there is a phase of renewed, robust growth, that will further propel wealth creation and bring a new set of clients to our doors.

Hywin’s business model is auto-balancing. When China grows faster, Hywin benefits; if China slows down, we also benefit. When clients are adventurous, we benefit, and when clients are feeling more insecure, we will also thrive. This inbuilt stability ensures Hywin as a company can operate with resilience and equanimity, which also makes us a focused, long-term-oriented, un-conflicted partner for our clients.

Hubbis: To add more context to the conversation, can you identify the key current and emerging trends in the domestic wealth management market in China, and that Hywin is addressing?

Nick Xiao: In China onshore, banking, brokerage and mutual funds are intensely competitive and in some areas under severe margin pressure, as tech-powered players disrupt comfort zones and price wars are non-stop.

However, the wealth management market is less pressured, as clients are willing to pay for advice and problem-solving, and wealth managers can safeguard their profitability with strong institutional bargaining powers vs “manufacturers” of products.

In particular, private markets, right from angel capital, venture capital to private equity and hedgefunds, offer a large universe of returns and complexity. Wealth managers’ due diligence skills, portfolio construction skills, and the ability to explain sophisticated investment thesis to clients as articulate and reasoned narratives - become very useful and keenly sought after.

In the past 17 years, Hywin’s 140,000 clients didn’t come to us for deposits, cards, or trading stocks, but for advice, guidance, and handholding in asset allocation. More than half of the RMB 79billion of our “client transaction values” in a typical year takes place in the private market space. Hywin doesn’t have to “enter” the private market because it’s already one of our habitats.

Another area Hywin is building up is family office. Both in mainland China and Hong Kong, we have been enhancing our family office offering. Hywin is the “family office” of many rich clients, but we can also be the execution/advice platform for clients’ own family offices that may be organised as investment companies, foundations, or private funds.

Family office business is the ultimate “weaving job” - tech infrastructure, institutional relationships, hard technical prowess, soft people skills, managing conflict of interest, generating solid portfolio performance, handling compliance/reporting – and at the end of the day, building up quality AUM and a reliable recurring income stream for the firm.

Hywin is majority-owned and led by an entrepreneurial family, and their prudence and humility are embedded in everything we do. Our shareholders and our clients expect exactly the same from us - fiduciary diligence, long-term thinking, professional excellence. My point is - the Hywin business model and the Hywin team are ideally suited to be and to serve the family office of UHNW clients in Asia. And we always look forward to the next challenge from our clients.

Hubbis: Hywin has a strategic relationship with VP Bank. Can you offer more insight into that and its importance?

Nick Xiao: The partnership with VP Bank has become part of what Hywin is. We leverage VP Bank’s global custody, research and execution to serve our clients, for sure. But VP Bank’s best practice in governance, risk management, and talent development also inspire and inform the setup and processes at Hywin.

For our clients, VP Bank’s DPM, wealth planning, insurance financing and research are very popular. The fact that VP Bank has mandarin-speaking staff across Vaduz, Singapore and Hong Kong has made the collaboration truly work around the clock.

Apart from the classic EAM collaboration, Hywin and VP Bank are jointly assessing opportunities in tokenisation, client residence solutions, private-label funds, etc. The two firms also work together to champion ESG, empowerment of women, and other societal causes.

By the way, Hywin’s inhouse funds have been onboarded at VP Bank, allowing Hywin clients to subscribe to Hywin funds from his/her PB accounts with ease.

Whenever a new frontier emerges, Hywin and VP Bank will discuss and assess to identify synergies. This is a partnership that never sleeps.

Regan Shum of Hywin International with Paul Arni, CEO of VP Bank

Hubbis: Apart from VP Bank, does Hywin have other partnerships?

Of course. Hywin as an open-architecture wealth manager builds partnerships with many players in the financial services eco-system to offer the fullest proposition to our clients.

Hywin has very strong distribution partnerships with leading asset managers including Carlyle, Schroders, Oaktree, etc. And these asset managers embrace Hywin for good reasons.

On one hand, Hywin has a large funding pool. We are the trusted advisor for 5% of China’s high-net-worth population and in a typical year would raise more than USD 6bn worth of new funding for private market products. In my view, the funding scale can be increased significantly, as our clients have infinite appetite for alternatives products that can meet Hywin’s rigourous due diligence standards. I will even say “supply constraint” is the key challenge for our thriving PE/VC distribution business. That’s why my Asset Management Head Aaron Sung and COO Jeffrey Wong have interviewed more than 30 new asset managers in 2022 alone, and we will start fund raising for three new managers that have survived our DD process with high scores.

On the other hand, Hywin enforces best-practice KYC and suitability when marketing alternative funds (and any other products) to our clients. These globally renowned asset managers want new money, new investors, but they are legitimately worried their products and strategies could be sold to the wrong clients, or sold to the right clients in the wrong way or with the wrong expectations. By working with Hywin, these asset managers have the pleasure of receiving the new funding and also the peace of mind that the funding comes from clients who understand the strategy and are qualified to participate.

Another type of partners is no less interesting - what we call the open-sky partners. One example is New World Development - yes, the most famous and prestigious group in Hong Kong. Recently we most gladly had the CFO of New World Development as a panellist at our client conference. New World Development’s long-term vision, and tireless value creation for customers and for investors are inspiring and also very similar to Hywin’s. We look forward to exploring strategic synergies with partners like New World Development in a truly open sky way.

New World Development CFO (Edward Lau) at a Hywin event

Also, recently Hywin’s CFO, Mr. Lawrence Lok spent a week in the Middle East and hosted luncheons and meetings with Middle East investors, institutions and government representatives. In particular, Hywin started a very interesting conversation with ADGM (Abu Dhabi Global Market) on how Asia capital and entrepreneurs can leverage ADGM as the gateway into the Gulf region. Interestingly, Hywin’s head office is located at Shanghai’s Lujiazui Financial District - a special zone to promote the growth of financial services. Hywin has enjoyed the supportive policy environment and excellent business infrastructure of the District ever since 2006. I believe Hywin is uniquely positioned to help promote the advantages of ADGM - the Lujiazui of Middle East if I can put it that way - to our network of clients and institutional partners in Asia.

Hywin CFO (Lawrence Lok) meeting ADGM

Hubbis: You also entered a relationship with FactSet of the US relating to healthcare. Can you explain briefly what that entails and what you aim to achieve?

Nick Xiao: FactSet is a global provider of integrated financial information, analytical applications, and industry-leading service. In the middle of this year, we launched the FactSet Hywin Global Health Care Index (FHGHC) to enable global investors to better capture the investment opportunities within the healthcare industry.

Inspired by Hywin and calculated using FactSet’s proprietary datasets, the index tracks 40 company stocks selected from 19 stock exchanges, covering 36 sub-sectors of healthcare, thereby representing what the two firms believe is a diversified and comprehensive benchmark of the global healthcare industry.

In our view, healthcare is a “megatrend”, addressing the most momentous issues of our age and bettering the lives of millions of people. By adding value to humanity, the leading companies in healthcare naturally and almost certainly creates long-term, sustainable value for their shareholders. The FactSet Hywin Global Healthcare index has generated a total return of 45% in the past 3 years, and 11% in the past 12 months amidst tremendous volatilities.

Talking of healthcare, I want to mention that Hywin in August 2022 acquired the majority stake in Life Infinity, a leading provider of integrated health management solutions to affluent customers in China, for RMB140 million (US$20.7 million). This transaction extended Hywin’s service spectrum from wealth management into health management, consummating the “wealth + health” dual proposition to our clients.

Aaron Sung of Hywin International unveiling the FactSet Hywin Index

Hubbis: And what is your final comment?

Hywin believes in partnerships, in every sense of the word. Complementarity of strengths, exchange of ideas, alignment of long term interest, commitment to shared mission, and trust and conviction through good times and tough times.

Our clients have an inexhaustible list of wishes, and the world presents an infinite stream of conundrums and opportunities. No firm - however mighty or smart – has the resources for all of them.

Searching for the right partnerships and nurturing it to benefit our clients and our shareholders – these are part of the mission of Hywin.