The wealth management arm of debt-ridden Chinese developer Evergrande is reportedly being probed by the local government.

Evergrande Wealth is being investigated by the Shenzhen government, Reuters reported.

The development is seen as the first sign of a possible wealth management crisis at the Chinese developer, which is on the brink of default with $305bn debt.

The wealth unit of the Shenzhen-headquartered firm missed a payment on wealth management products (WMPs) earlier this month, triggering concern about loss.

The Shenzhen Financial Regulatory Bureau said in a letter to investors that ‘relevant departments of the Shenzhen government have gathered public opinions about Evergrande Wealth and are launching a thorough investigation into related issues of the company’.

According to the letter, the government is also urging China Evergrande and Evergrande Wealth to work to repay investors.

Both Evergrande and the government of Shenzhen did not respond to Reuter’s requests for comment.

Evergrande is said to have sold WMPs worth over $15.47bn (CNY 100bn) in the last five years.

These products have been purchased by over 80,000 people, including Evergrande employees, their families, and friends as well as Evergrande properties owners.

The investors claim that some CNY40bn of the investments are currently outstanding.

Evergrande effect on asset managers

In a separate development, the data by Morningstar shows that a number of asset managers including BlackRock, BlueBay, Ashmore, and UBS are exposed to Evergrande.

Funds by UBS Group and London-based Ashmore Group are said to have kept holdings in Evergrande debt. The Fidelity and SinoPac funds also held substantial investments.

BlueBay Asset Management, the asset management unit of Royal Bank of Canada, told Reuters that it has been reducing its holding in Evergrande since the end of last month.

The firm claims to maintain ‘very limited’ investments in the Chinese developer.

The Morningstar data also shows that the asset management division of HSBC exited the Evergrande position in September while fund manager TCW quit its position last month.

This week, FT reported that Swiss investment giant Credit Suisse scrapped its complete exposure to the developer late last year.