Hong Kong-based Oakwise Capital Management, the latest to set up a family office business in the Asian financial hub, is planning to at least triple the assets it manages for wealthy individual investors in the next three years after seeing the listing frenzy in recent months boost liquidity for clients.
Oakwise, founded in 2018 by Eric Wang, is an asset management firm that operates 10 funds under fixed income, public and private equity (PE) strategies with over $2 billion in total assets under management (AUM). The firm officially launched its family office business in Hong Kong this April.
The firm appointed its partner Richard Zhang, a former executive at China’s CITIC Securities and ABC International, to lead the new family office business. “The years of 2020 and 2021 are probably the years for family offices because many people are getting rich during the IPO frenzy. We’ve come to know a lot of young people who have gained significantly from capital markets,” said Zhang in an interview with DealStreetAsia.
Within its $2 billion-plus AUM, 25% – or about $500 million – is currently from high-net-worth individuals (HNWIs), defined as an investor with around $1 million in liquid financial assets; and ultra-high-net-worth individuals (UHNWIs), those with investable assets of at least $30 million.
The firm has set a three-year plan of growing this $500 million to somewhere between $1.5-2 billion – a “not-that-aggressive” target, according to Zhang, head of this nascent strategy.
Located in Hong Kong, the source of 80% of its capital, Oakwise introduced the new Family Office business to capture opportunities in the city’s record number of multimillionaires. According to the World Ultra Wealth Report 2020, Hong Kong ranks only after New York as the world’s second-biggest city in terms of the ultra-wealthy population thanks to favourable trends in its capital and currency markets. At 9,950, the number of Hong Kong’s UHNWIs in 2019 grew 11.2% over the previous year.
Oakwise’s new business line also came amid policy tailwinds. In August 2020, Hong Kong’s legislature passed a law to allow the establishment of limited partnerships, a business format favoured by family offices. The move targets to transform the city into a regional hub for managing the fortunes of wealthy clans.
Besides Hong Kong, Oakwise also raised roughly 10% of AUM from investors in the United States, including a New York-based fund of funds (FOF) which Zhang declined to specify. The remaining 10% was from investors in mainland China and elsewhere.
“We see a lot of potential… with many people in Greater China seeking to get more exposed to this [family office] area,” said Zhang, adding that Oakwise will continue to focus on expanding its investor base in the region.
The firm also manages assets from institutional investors, including Chinese state-owned enterprises, local government financing vehicles, financial institutions, and listed firms. Its major backers include COSCO Shipping Investment, a subsidiary of Chinese state-owned marine transportation service COSCO Shipping.
Be patient, be selective
For more aggressive clients, Oakwise plans to continue to feed them with PE opportunities. But being a newcomer in this industry with the launch of its PE department only in 2019, Oakwise takes a different approach by focusing firepower on companies at the mature stage and close to an initial public offering (IPO) to ensure investment returns.
“That’s the strategy for new companies,” said Zhang. “The PE industry is dominated by big names like Hillhouse and IDG, which have a blind pool of money and a group of LPs with a strong faith in them. It is extremely difficult for newcomers.”
According to a Bain & Company report, the PE market in Greater China remained polarised in 2020, with the top 20 PE companies participating in close to 30% of transactions that collectively contributed to nearly 40% of capital.
While limited partners (LPs) generally grew more risk-averse in a global health crisis and entrusted their capital to the few leading general partners (GPs), competition for quality investments, especially growth-stage deals, also intensified. The average number of investors per deal reached a new peak in six years, as a majority of deals in 2020 were funded by five investors or more, according to the report.
Zhang said that Oakwise’s PE business typically injects $20-30 million into each deal and stays away from making a heavy bet on one single firm. The firm’s strategy of investing in companies at the pre-IPO stage will remain unchanged in the long run.
“We need to generate returns for investors as quickly as possible while ensuring a high success rate. We cannot afford to make an investment that will take five years before IPO,” said Zhang. “We must wait. We must be very selective. We probably screen 500-600 projects per year but only invest in five to 10 deals.”
Under the strategy, Oakwise managed to score a handful of fruitful investments. Kingsoft Cloud, a Chinese cloud computing services provider that it had invested in early 2019, went public on Nasdaq in May 2020 in a $510-million IPO. Zhang claimed that Oakwise’s investment in the firm had “at least tripled” upon exit through its IPO.
The firm also pulled out from its investment in MINISO, a Chinese budget household and consumer goods retailer that raised $608 million in an IPO on the New York Stock Exchange (NYSE) in October 2020.
Through connections built in this investment, Oakwise participated in MINISO’s cosmetics sub-brand WOW Colour’s 500-million-yuan ($77.2 million) Series A round. The deal was completed in March, with Kai-Fu Lee’s Sinovation Ventures serving as the lead investor, alongside other investors like IDG Capital.
It also backed a $550-million Series A round for Sweden’s Polestar, an electric vehicle (EV) maker controlled by Volvo and its parent Geely. Shortly before the announcement of the Series A round in April, The Wall Street Journal cited sources, reporting that Geely was considering taking Polestar public by merging it with a SPAC that could boost its valuation to $40 billion.
Oakwise already made four PE investments totaling $60-80 million so far this year, while it is on track to close two more transactions before June. If its deal pace continues in the second half of 2021, the firm expects to complete the year with 12 transactions at a combined investment size of approximately $200 million.
For 2021, its PE strategy will centre around startups in the new economy sector, as well as innovative businesses, pharma companies, and developers of AI-enabled smart, connected vehicles, among others.
“We’re lucky in the sense that we launched the business in 2019… before the PE market went ‘red hot’ in 2020. We jumped on the train, and we were lucky enough the come across very good projects. That established our name in the industry,” said Zhang.
Oakwise is also developing its fixed income strategy, under which the firm manages $1.5 billion and is looking to expand the capital pool to nearly $2 billion around the third quarter of this year. The fixed income strategy focuses on short-tenor bonds of around one to two years.