Mirae Asset, Hanwha eye China IM-WFOEs
Korean fund firms Mirae Asset Global Investment and Hanwha Asset Management are looking to set up or expand wholly foreign-owned enterprises (WFOE) in China that can conduct investment management.
Onlookers say the companies are doing so in order to gain investment mandates from local pension companies and insurers.
Observers said the move made sense for both companies, given their desire to access China’s fast-growing investor base. Foreign asset managers that want to win domestic mandates will be well served by having a local operation and offer proven investment products, said a Singapore-based analyst.
Mirae Asset, the Seoul-based fund firm that has assets under management of $97.9 billion, is in the process of changing the registration of its mainland WFOE into an investment management firm in the Shanghai free trade zone, after having received the nod from the municipal government.
“We would like to participate more in the onshore asset management industry, so that we can contribute to a better asset allocation of onshore investors,” a Seoul–based spokesperson told AsianInvestor in an email reply to questions.
Eyeing QDLP
Mirae’s WFOE, YiCai Investment Consulting, was first established in 2008. It has functioned as the company’s vehicle for direct investments into real estate projects in China, and has provided on-the-ground market insights to facilitate Mirae’s participation in the qualified foreign institutional investor (QFII) scheme. The company has been assigned a QFII quota of $350 million.
After it changes its business licence, YiCai is likely to be the first Korean investment management WFOE in China. It will then need to register with the Asset Management Association of China (Amac) before it can launch products and invest into domestic private securities in the country’s secondary market.
Mirae is also trying to obtain a licence under Shanghai's qualified domestic limited partner (QDLP) scheme, which allows foreign managers to raise money from domestic wealthy and institutional investors and invest into their existing flagship products.
Mirae is not the only Korean asset manager keen on making a splash in China. Hanwha Asset Management, which manages $73 billion in AUM, said it plans to apply for a IM-WFOE in Tianjin, a northeastern city near Beijing, the group said after its board of directors meeting in late September, according to a report by The Korea Herald.
The firm aims to establish a mainland stand-alone unit by March next year, and then to launch its first product in the second half. Under the existing rules IM-WFOEs are required to launch their first product within six months of gaining Amac registration.
A handful of foreign managers, such as Aberdeen, Fidelity, Bridgewater and JP Morgan Asset Management, have also set up IM-WFOEs over the past 12 months. Such wholly-owned onshore units have become popular among foreign managers who aim to expand their China business, for instance, both Vanguard and Pimco have mulled their plans for China’s WFOE recently.
Domestic mandates
Not all WFOEs are created equal, however. Many foreign managers have set up their vehicles in China, but they are typically constricted to one of three lines of business: direct investment (like Mirae Asset’s YiCai), consulting, or QDLP activities. Some firms have already set up two WFOEs to work in more than one area, for example, UBS Asset Management or BlackRock.
Foreign managers with an existing WFOE with a single line of business will need to seek Chinese government’s nod to change their licence into other areas, such as investment management, before registering with Amac.
Miao Hui, Singapore-based senior analyst at research firm Cerulli, said foreign asset managers have to conduct a full-scale localisation of their China business if they want to tap into China’s competitive local private fund industry. This scale includes having local distribution, investment networks, the capacity to handle legal issues and local talent hiring, she added.
The ultimate goal for such IM-WFOEs is to target domestic institutional mandates amid the industry deregulation.
“As banks are giving mandates to private funds already, foreign managers can expect mandates after their registration and with fulfilling banks' criteria,” Hui said.
“Domestic institutions could have interests in successful overseas investment strategy and [foreign managers] bring them to China market,” she added. "Testing of the strategy will be needed before substantial mandates [are provided]."
The China Securities Regulatory Commission (CSRC) gave the green light to foreign managers’ IM-WFOEs to register as private fund firms in late June. Amac had an internal meeting with over 20 foreign firms, including Mirae Asset and Hanwha AM, in late September, where it noted the registration platform is ready.