Not All Asset Managers Fled China Tutoring

In July, the Chinese government said all institutions with a school curriculum must register as non-profit organizations, challenging the profitability of private tutoring firms across the country.

The move from Beijing came after another announcement – the relaxation of the number of children couples can have, which is now three. Stripping after-school tutors to make a profit is an attempt to alleviate the cost of raising and educating children in China by making tutoring affordable for parents, to ultimately drive up the national birth rate.

The broader group of education companies, including names that provide after-school tutoring or vocational training, had a potential for growth, and as a result, many asset managers held large positions in the sector. That is not true anymore.

From Jan to Now

At the beginning of 2021, Greater China funds managed by JP Morgan, Value Partners, and UBS had varying levels of exposure to the sector.

UBS China Opportunities started the year with almost 10% assets in TAL Education Group (TAL), which was among the hard-hit after-school education providers. In July (the latest data available), the fund had 0.12% in TAL and 0.08% in New Oriental’s ADR shares.

In comparison, Value Partners’ portfolio hold multiple names that provide different levels of education services. Other than New Oriental and TAL, the fund also backed vocational institute China Education Group (00839), private higher education schools Hope Education Group (01765) and Minsheng Education Group (01569), and early-childhood education RYB Education (RYB). Its positions in New Oriental and TAL were completely offloaded by the end of the first and third quarters, respectively.

Compared to the UBS and Value Parnters funds, the JP Morgan fund started the year with a smaller exposure to education names, with over 1% coming from New Oriental Education & Technology Group (EDU, 09901). The manager sat on the same position and subsequently liquidated the entire holdings in May 2021.

But Wait. There’s a New Buyer!

Interestingly, FSSA Greater China Growth was the only medalist fund in this category that topped up exposure to TAL. Morningstar’s data shows that the manager started creating the TAL position in May 2021 and the fund held the stock at least through July. 

©2021 Morningstar. All rights reserved. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided as of the date written, solely for informational purposes; and subject to change at any time without notice. This content is not an offer to buy or sell any particular security and is not warranted to be correct, complete or accurate. Past performance is not a guarantee of future results. The Morningstar name and logo are registered marks of Morningstar, Inc. This article includes proprietary materials of Morningstar; reproduction, transcription or other use, by any means, in whole or in part, without prior, written consent of Morningstar is prohibited. This article is intended for general circulation, and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Investors should consult a financial adviser regarding the suitability of any investment product, taking into account their specific investment objectives, financial situation or particular needs, before making any investment decisions. Morningstar Investment Management Asia Limited is licensed and regulated by the Hong Kong Securities and Futures Commission to provide investment research and investment advisory services to professional investors only. Morningstar Investment Adviser Singapore Pte. Limited is licensed by the Monetary Authority of Singapore to provide financial advisory services in Singapore. Either Morningstar Investment Management Asia Limited or Morningstar Investment Adviser Singapore Pte. Limited will be the entity responsible for the creation and distribution of the research services described in this article.