Ping An Trust is poised to launch its first QDII product for professional investors more than two years after receiving its licence in a move that may point to underlying Chinese demand for alternative assets overseas.
It is expected the firm will need to rely on offshore asset managers, at least initially, in its efforts to provide exposure to alternatives not yet available on the mainland.
The company, a subsidiary of insurer Ping An, revealed this week it had obtained a $300 million qualified domestic institutional investor (QDII) quota from China’s State Administration of Foreign Exchange – having received its QDII licence as long ago as October 2008.
It becomes the fourth trust firm to receive a QDII quota after Shanghai International Trust, which tells AsianInvestor it launched several tailored QDII products late last year, and Citic Trust.
The firm aims to provide customised products to professional individuals in accordance with their needs and the economic cycle, in doing so diversifying from its existing offshore funds.
Its chief executive, Tong Kai, argues that several asset classes have been oversold amid market volatility, citing the stocks of Chinese firms listed in the US, as well as commodities in general.
China banking rules stipulate that trust fund investors must have more than Rmb1 million ($157,000) in assets during the subscription period and annual income over Rmb200,000 or combined household income over Rmb300,000 in the three years prior to investment.
As such, QDII trust products are distinct from QDII mutual fund products, given that they are targeted at wealthy investors with a need for overseas exposure rather than retail investors of fund management companies (FMCs).
The QDII segment has typically been the purview of FMCs after its introduction in 2007, although the onset of the global financial crisis saw Chinese retail investors flock back to domestic assets en masse.
Only a handful of QDII products released by FMCs since have seen genuine demand – such as Lion FMC’s gold fund – indicating there is appetite for product designs that offer targets unavailable to domestic investors, notes Shanghai-based consultancy Z-Ben Advisors.
“It is highly likely that after noticing demand for offshore exposure from their high-net-worth investor client base, [Ping An Trust] applied for a quota to create products,” Z-Ben finds.
It points out that trust companies are far more flexible in choosing investment targets and suggests this is the primary reason that FMC-based QDII fundraising has suffered.
Ping An Trust now appears well placed to capitalise on potential demand for diversified offshore assets, and Z-Ben expects its main competitors to follow suit.
It believes Ping An Trust will adopt a fund of funds approach, therein creating opportunities for foreign asset managers or advisers to provide the type of exposure necessary.
“Ping An Trust’s foray will be an important indicator of actual underlying demand for alternative offshore exposure,” adds Z-Ben.
“Should the offerings sell out and other trust firms pursue an identical strategy, this development potentially represents a multi-billion dollar segment over the next several years.”
Since 2007, just five trust companies have obtained QDII licences, namely China Credit Trust, Shanghai International Trust, Zhonghai Trust, Ping An Trust and Citic Trust.
As at the end of last year, the combined quota of the first three companies was $600 million, or less than 1% of the total QDII quota of $68.4 billion.
The strict quota system has limited the growth of QDII trust products, with Ping An Trust’s receipt of a $300 million quota the largest to date. By the end of the first half of this year, the balance of QDII trust products was just Rmb468 million, or 0.01% of the trust sector’s overall AUM of Rmb3.7 trillion.