Shinhan-BNPP IP JV outlines RQFII plans

Shinhan BNP Paribas Asset Management last week became the first Korean institution to receive quota under China's renminbi qualified institutional investor scheme, having received its RQFII licence in October.

Now that it has approval to invest in mainland securities, the firm plans to launch three RQFII actively managed mutual funds – an A-share, a bond and a balanced product – by the end of next month. 

The joint venture between BNP Paribas Investment Partners and Seoul-based Shinhan Financial Group received Rmb3 billion ($488 million) in quota from China’s State Administration of Foreign Exchange (Safe) on November 27.

The fund house also plans to build its own internal credit rating capability for Chinese bonds instead of relying on an external agency, citing concerns over rating reliability.

Chinese bonds with the same rating sometimes exhibit very different credit volatility from those issued elsewhere, said Jang Deogjin, deputy CEO at Shinhan BNPP AM. “We also need to know the liquidity of bond securities in the interbank bond market when we decide to buy and sell."

The new bond fund, the firm’s first Chinese fixed income product, will target institutional and private bank clients, but not retail investors.

China’s bond market is new territory for the firm, so it had sent two managers to Shanghai on a reconnaissance mission, said Jang.

Shinhan BNPP AM already runs three China equity funds and holds $100 million in QFII quota.

The new bond fund’s four-strong investment team is spread across Seoul and Hong Kong, and Jang said there is no plan to expand it at this stage. The firm's China equity team is three-strong.

Though yields are relatively high in China – 10-year government bonds yielded 3.55% yesterday, and 10-year Treasuries 2.22% – Jang flagged liquidity as a concern, in addition to credit rating reliability.

The firm did not provide further details on the equity or balanced fund.

Shinhan BNPP AM, which had W35.6 trillion ($32.1 billion) in AUM as of November 30, received its RQFII licence from China Securities Regulatory Commission (CSRC) in late October.

Seoul was handed its first handed Rmb80 billion in RQFII quota in July 2014.

Shanghai-based consultancy Z-Ben Advisors expects other Korean fund managers, such as Mirae Asset, Hanwha and Samsung, to receive licences in the near future, as reported.

Meanwhile, Singapore's Lion Global Investors has received its first RQFII quota, of Rmb1 billion. The firm plans to launch three RMB funds early next year – a bond fund, an equity product and a balanced fund, as reported.

But Safe has not granted additional RQFII quota to Hong Kong fund managers since October, when the city’s quota cap of Rmb270 billion was hit.

That said, the Hong Kong Monetary Authority has been lobbing for a higher quota and recently received a positive response from Safe, according to a South China Morning Post report.

In October, the CSRC handed out RQFII licences in Hong Kong to four firms: BNP Paribas Investment Partners Asia, CCTIC International, Rongtong Global Investment and Shanghai Commercial Bank. The regulator also awarded a QFII licence to Axa Fund Management in Luxembourg.

The RQFII programme was first introduced in Hong Kong in December 2011, and was then expanded to include London and Singapore in October 2013, Paris in March 2014, and Seoul and Frankfurt in July 2014.

Last month, China extended the scheme to Australia (Sydney), Canada (Toronto) and Qatar.