Aberdeen AM sets world first with China WFOE

The UK house has become the first global manager to be granted a licence that enables it to operate fully as a private domestic securities firm onshore in China after a rule change.
Aberdeen AM sets world first with China WFOE

UK house Aberdeen Asset Management has become the first global manager to be granted a wholly foreign-owned enterprise (WFOE) licence in China that enables it to operate fully as a private domestic securities firm.

The entity – Aberdeen Investment Management (Shanghai) – was established on Monday, September 14 in the Shanghai free-trade zone. Its legal representative is listed as Hugh Young, Aberdeen AM’s managing director in Asia, according to the Shanghai Municipal Administration for Industry and Commerce website.

Chinese authorities announced a relaxation of WFOE rules in Sino-US talks this June, allowing international firms to access the onshore private securities market, as reported.

But there had been no further confirmation until this Monday, when China’s finance ministry stated that global firms could start a private funds business, including secondary equity market trading.

Previously the scope of WFOEs had largely been restricted to investment consulting. But Aberdeen AM’s entity will be allowed to do investment management, enabling it to manufacture and market its own products in the private market. It will also be able to tap wealthy mainland investors and provide client servicing to institutional investors.

It is understood Aberdeen AM has to clear one final hurdle by receiving official permission for its WFOE from the Asset Management Association of China, a body acting under the China Securities Regulatory Commission.

Approval would make it the first foreign firm to operate as a private fund house in China without the need for an “overseas” or “investment consulting” designation. The names of most WFOEs contain "consulting" or "advisory" in the title, such as BNP Paribas Investment Advisory (Shanghai).

Some WFOEs set up for alternatives managers under the qualified domestic limited partners (QDLP) scheme in Shanghai, or for private equity or venture capital investing, are allowed to perform overseas investment management, added Shanghai-based consultancy Z-Ben Advisors.

The UK government is said to have supported Aberdeen AM’s Shanghai WFOE. It comes after a meeting of UK chancellor of the exchequer George Osborne and Chinese vice-minister Ma Kai during the seventh UK-China Economic and Financial Dialogue in Beijing on September 21.

Aberdeen AM has long been cautious on China’s A-share market due to concerns over transparency and company quality, as reported. However, as an emerging markets investor it is positive on China from the medium to long term. The firm launched a value-oriented A-share fund for European institutions in October last year, as reported.

Aberdeen has been mulling whether to establish a WFOE in China for several years and had been waiting for an opportune moment when it could do more than investment consulting. Young has previously told AsianInvestor he was not keen on joint ventures, where foreign parties are still limited by regulation to a 49% holding.

“The investment process is vital for us to control, as well as compliance and finance,” he had said. “It is also hard to find the right partner. Ultimately we would want to run it ourselves and brand it Aberdeen.”

Separately, China’s finance ministry has revealed that Beijing and London have set up a committee to jointly study a potential mutual fund recognition scheme between the two nations.

The British government noted it was considering a licence application from GF International’s asset management business for a London office. GF International has already outlined its London ambitions to AsianInvestor, as reported. If successful, it would be the second Chinese fund house to operate a London office after Harvest Global Investments.

China also agreed to simplify the licence approval process under renminbi-denomined qualified foreign institutional investor (RQFII) scheme, and to expand quotas to the UK depending on demand. China handed out Rmb80 billion in RQFII quotas in October 2013. As at the end of August this year, 11 firms had won a total of Rmb21.2 billion in RQFII quota.

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