Matthews Asia is navigating a challenging period. Founded 30 years ago by Paul Matthews, the firm achieved a rare trifecta: consistently outstanding risk-sensitive returns across the entire fund family, outstanding success, such as the once $60 million AUM firm touched the $36 billion mark, and enormous professional respect as the country’s premier Asian investing specialist with a robust internal culture and deep bench.

The Matthews Asia of 2025 feels a long way from that success.

Assets have plummeted from $36 billion to $6 billion. Performance is mixed at best, with only three or four of 12 funds having above-average or higher risk-adjusted returns over the past 5- or 10-year periods. Something like half of the investment team has left the firm, some walking away and some pushed out. One of Morningstar’s most senior analysts, William Samuel Rocco, crystallized the concern:

The firm has suffered from extreme personnel turnover throughout the 2020s, and it has lost 15 members of its investment team during the past two years, including a former CIO/portfolio manager and other key individuals. The firm has hired Sean Taylor as a CIO/portfolio manager and added another portfolio manager in the past two years. There are now 18 individuals…on the investment team…But there were 31 individuals on the investment team in mid-2023 and 38 in 2020. Moreover, Cooper Abbott left the firm in April 2025, less than three years after joining the firm as CEO.

Matthews has replaced Abbott with Mark Headley, who had ample success [in several roles at Matthews before his retirement]. But Headley, Taylor, and their colleagues have daunting challenges to address. Most of the firm’s strategies have posted mixed, or worse, returns in recent years, and investors have pulled assets away.

We spoke with Mark Headley in June 2025. When asked about the suggestion that Matthews had lost its way, his response [I’m paraphrasing here] was: “Yep, pretty much.”

In an hour-long conversation, we pursued two questions with Mr. Headley: (1) what went wrong? and (2) is it fixable? The shortest [still paraphrased] version of his answers: (1) We screwed up our internal culture to the extent that it stopped producing good results and (2) I’m pretty sure we can. “There are still good bones there.” We’ll know within three years.

What happened to Matthews’ culture? There were two changes, complicated by a third factor.

Change one: they got too big and perhaps got a bit full of themselves. In the mid-2010s, everything worked: money was pouring in, performance was perking along, funds grew, the team grew, and salaries grew. But somewhere in there, identity was lost. By Mr. Headley’s estimation, a 40-person investment team is not “a team,” it is at best a bunch of talented, competitive people occupying the same space. They were a collection of teams, not a single team, and that made a huge difference. Collaboration reduced, cooperation fell, silos arose, and teams saw themselves in competition with one another for resources and attention. The whole became weaker than its individual parts.

Change two: leadership stopped leading. Building and sustaining cultures is hard. It takes a very distinctive set of skills to pull it off: a mindset that loves challenge and is willing to challenge others, a mindset that asks “where do we need to be in five years and what do I need to do this week to move us in that direction?” (If you ever wonder about the fundamental flaw in Karl Marx’s thinking, this is it. He never valued the intellectual work of “the capitalist class,” who organized, strategized, and supported “the working class.” He saw anyone collecting a paycheck but not working on the factory floor as dead weight. They are not.) Arguably the leadership became more laissez-faire, hiring talented people but not taking responsibility for their growth, not holding them responsible for their actions (for example, not calling out a triple-digit turnover ratio in a buy-and-hold portfolio) and not considering the entire range of skills required (including communication skills and the ability to get people excited about the strategy) in their personnel decisions. The retreat into silos meant that the teams, and the leadership, no longer took time to assess the macro-level forces shifting the entire world.

The influence of investment professionals waned as portfolio managers retreated into silos, and the influence of sales and marketing grew. That’s rarely a good thing since the understandable impulse of a sales team is to produce more of whatever is currently sellable.

The wild card factor: Xi Jinping upset all of the leadership’s earlier assumptions. The firm always counted on China, however flawed that now seems, to move steadily and relentlessly toward becoming a rational economic actor. Mr. Xi, instead, reasserted greater centralized control. Those developments weakened the case for “Asia” as a distinct asset class. Rather than a distinct global driver, investors began thinking of Asia as just one part of the emerging markets puzzle. Assets then shifted from Asia-centered funds to those with broader mandates.

Can Mr. Headley fix it? He thinks so. His simplest metric: if Matthews can reach around $12 billion AUM within three years, they’ve won.

Mr. Headley starts with a different perspective than most. He does not want to return to the glory days. He does not want 35 or 40 portfolio managers in the building. He does not want a steady stream of new “products”. He does not want $36 billion in assets. He does not believe that any of those are sustainable states for a mission-centered boutique manager.

More sustainable: $10-12 billion in assets, 20 or so investment professionals, a willingness to see Asia in its larger context, and perhaps fewer funds than they manage now. Also important is to bring stability back to its investment team, led by Sean Taylor, who has over 30 years of experience in emerging markets, or, where necessary, bring in some new talent.

His plan, so far as I understand it, is (1) to look at everything with fresh eyes and (2) to rebuild a winning culture. The “look at” part includes an assessment of what works, and what’s been limping along, what’s central and what’s merely a niche, and, most importantly, who they can build around. That is, who on the staff has the entrepreneurial mindset, passion, and communication abilities that will allow them to champion their own strategies and, eventually, to lead the firm.

The “rebuild” part comes down to teaching portfolio managers that failure is inevitable and not shameful; you shouldn’t hide it, you need to learn from it. In part, that requires owning up, talking through, and strategizing. All of which is some combination of alien and scary. Part of Mr. Headley’s job is to make it normal again. Part of the cultural rebuild is re-engaging with macro factors, allowing a top-down vision that complements bottom-up security selection. Without the top-down, a manager risks developing an obsession with picking up pennies in dark alleys. Finally, people need to be held accountable for their decisions.

Bottom line

I agree with Mr. Headley, “there remain good bones in there.” We came away from our interview with several strong impressions. First, Mr. Headley is very smart, very confident, and very competitive. Winning is in his DNA. Second, Mr. Headley did it before, helping guide a $60 million firm to become a $30 billion one. Third, he’s willing to ruffle feathers as the necessary price of improvement. He does not seem headstrong but does seem to have a clear sense of what success demands. He is betting that a vibrant internal culture and deep regional expertise – rather than index-hugging breadth – will win clients looking for long-term exposure to the world’s fastest-growing economies.

I would not bet against him.