Hong Kong's listed Convoy Global buys stake in UK's Nutmeg, as it evolves its biz model

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Convoy Global Holdings, a Hong Kong Stock Exchange-listed financial advisory business which mainly looks after local Hong Kong residents, has paid £24m (US$30.2m, €27.8m) to acquire a stake in the UK-based Nutmeg investment platform, as part of an ongoing evolution of its business model.

In a joint statement, the two companies said the £24m stake made Convoy the largest investor in a recent funding round which raised a total of £30m, and which they said was “the largest-ever round of funding by a digital wealth manager in Europe and the largest fintech raise since Brexit”.

Convoy group president Ng Wing Fai said the attraction for Convoy of Nutmeg was its “mission to democratise wealth management while delivering sustained investment performance and a seamless customer experience”.

Convoy’s investment comes at a time of major change for the wealth manager, which claims to be Hong Kong’s largest. It reported a loss of HK$467.26m (US$60.25m, £48.4m) in the year to the end of 2015, compared with a net profit the previous year of HK$246.17m (US$31.74m, £25.51m). In its year-end statement, the company attributed the loss to “the economic downturn and volatile stock market” that occurred in the latter part of last year, as well as to “the regulatory changes in [the] ILAS [investment-linked assurance schemes]” market.

These regulatory changes were similar to changes that have been, and are being, introduced to investment-linked savings products in other major markets, and covered the way such products are sold, in such a way as to provide investors greater transparency with respect to the commissions and other fees investors pay when they buy such products. The introduction of these new rules in Hong Kong in 2015 saw the company’s total investment commission income drop by around 85%, compared with the year before, suggesting a need – as has been the case elsewhere – for different types of products and services to be introduced.

The Convoy/Nutmeg statement about Convoy’s investment in the UK platform company didn’t mention any plans for Convoy to set up shop in the UK, although Convoy did change its name – to Convoy Global Holdings Ltd, from Convoy Financial Holdings – in August.

And its end-of-year statement last December noted it currently has wealth management and financial planning operations in Mainland China and Macau, as well as a growing overseas property investment consulting business, which it says accommodates Hong Kong and Mainland Chinese clients whose demand for overseas property around the world has been “increasing”.

“Convoy, as a fast growing corporate, has always been exploring potential opportunities to expand its business in Hong Kong or overseas,” a company spokesperson told International Investment.

“While the action regarding Nutmeg remains an investment to introduce fintech to Hong Kong, Convoy will not rule out any possibilities of business development, but there is no detailed plan that can be disclosed at the moment.”

In its first-half results for 2016, released in August, Convoy posted a pre-tax profit of HK$11m on sales of HK$484.5m, a gain of 59% and 30%, respectively, from the same period in 2015. It attributed the increase to a “satisfactory growth in new businesses, including the money lending, asset management and securities dealing businesses, effectively diversifying the [Convoy group’s] income stream and reducing its reliance on income from the traditional IFA business”.

At the same time, it noted that the re-naming of the company better reflected “the direction of its cross-border and diversified business development” and “corresponds with the group’s vision, which is not limited to its stature as the largest independent financial advisory company in Hong Kong, but also targets the global markets”.

Nutmeg ’16th largest UK wealth manager’

Nutmeg was founded in 2012, and currently manages more than £500m for more than 20,000 clients, and claims to be the 16th largest wealth manager in the UK, in terms of customer numbers.

The company said it plans to use the new capital to expand its product offering, and “rapidly boost the scale of the UK business”. The partnership with Convoy, it added, “also opens the door to expansion in Asia”.

Johnny Chen, senior adviser to Convoy and former Greater China chief executive of the Zurich Insurance Group, will take a seat on the Nutmeg board, the companies said, subject to the approval of the UK’s Financial Conduct Authority.