Morgan Stanley has reportedly reduced its staff by approximately 9 per cent within its asset management business unit in China. According to two sources familiar with the matter, the downsizing has affected about 15 employees at Morgan Stanley Investment Management China.

The streamlining process commenced in December, marking the first instance of staff reduction at Morgan Stanley's China fund unit since the firm acquired full ownership in 2023, buying out its local partner's 36 per cent stake for approximately $54 million. The move underlines the prevailing challenges faced by global financial institutions, including JPMorgan and BlackRock, amidst China's economic slowdown and market uncertainties.

China's CSI300 index recently hit five-year lows, exacerbated by an 11 per cent loss in 2023 driven by an unprecedented debt crisis in the property sector and subdued government stimulus efforts. The downturn in the Chinese market has adversely impacted investor sentiment, leading to substantial redemptions from actively managed equities funds.

Morgan Stanley IM China, based in Shenzhen, witnessed a decline in assets under management (AUM) since June 2021, with fund assets plummeting by 53 per cent to 19.8 billion yuan ($2.75 billion) by the end of 2023, according to company disclosures. The unit reported operating losses of 48.5 million yuan in 2022 and 23.2 million yuan in the first half of 2023, as disclosed by its former joint venture partner Huaxin Securities.

To navigate these challenges, Morgan Stanley IM China appointed Alex Zhou as its chief investment officer, previously holding positions at AIA as the head of equity. Zhou's appointment is part of the firm's strategic efforts to recalibrate its operations following the acquisition.

While the decision to reduce headcount aims to fortify the business amid subdued fundraising prospects, Peter Alexander, founder of China consultancy Z-Ben Advisors, suggests that foreign firms may be implementing cost-cutting measures under pressure from headquarters, rather than reacting solely to market dynamics.

(With Reuters inputs)