France’s Axa Investment Managers is preparing an all-out push to develop its China business on multiple fronts, AsianInvestor can reveal.
The strategy includes launching a bond fund, establishing a wholly foreign-owned entity in Shanghai, registering for access to the onshore bond market and seeking a licence under the qualified domestic limited partnership (QDLP) scheme, said Cheng Liao, executive director for Asia business development.
The €666 billion ($739 billion) asset manager, part of French insurer Axa, is also moving to develop its business through the qualified domestic institutional investor (QDII) and mutual recognition of fund (MRF) cross-border schemes.
Axa IM plans to launch a Luxembourg Ucits fund investing in China bonds for clients in Europe, Asia and Japan in the fourth quarter. It will mainly invest in onshore exchange-traded sovereign instruments and corporate credit with duration shorter than three years.
For the new product, the firm will use some of the Rmb3.4 billion ($500 million) quota it won late last month in Paris under the renminbi qualified foreign institutional investor (RQFII) scheme. It will invest the rest of the quota into RMB bonds and stocks on behalf of institutional mandates.
The firm’s China bond investments will be jointly managed by a six-strong team in Hong Kong and a 10-strong team at Axa-SPDB IM, its mainland joint venture with Shanghai Pudong Development Bank.
Accessing the CIBM
Liao stressed that RQFII and CIBM access should each serve different objectives. The CIBM is suitable for long-term, buy-and-hold investors, such as pensions and insurance firms, which tend to buy bonds issued by government and official institutions, he said.
But asset managers want to access the full market spectrum, which requires access to local exchanges, and will therefore also use the RQFII quota, noted Liao (pictured). (The CIBM does not allow access to exchange-traded bonds.)
As of January, the CIBM and exchange-traded bond markets represented 91.5% and 7.5% of China’s Rmb48.5 trillion ($7.3 trillion) onshore fixed income market, respectively. Other over-the-counter bonds accounted for the other 1.5%. Rmb21.9 trillion in government and policy bank bonds, accounting for 45% of the total debt market, is mainly traded through the CIBM, while Rmb1.6 trillion in corporate credit and asset-backed securities are traded on exchange.
WFOE for client servicing
Axa IM also plans to set up a wholly foreign-owned enterprise (WFOE) in Shanghai, but did not give a time frame for when it expected to do so. “We want to introduce our global investment capabilities and client servicing to mainland institutions,” said Liao.
Investment management WFOEs are now allowed to register as local private fund firms, which enables them to offer products to wealthy and institutional clients. But not all foreign managers plan to set up IM WFOEs because of restrictions on cross-border investing and fundraising. US firm MFS said it was likely to establish a consulting WFOE instead, because it does not intend to manage funds onshore.
Axa IM is likely to use Axa-SPDB Assets Management, a segregated account subsidiary under Axa-SPDB IM, to enter the mainland private fund and alternatives business rather than setting up an IM WFOE.
The firm plans to seek a licence under Shanghai’s qualified domestic limited partnership (QDLP) scheme, which will allow it to raise renminbi domestically to invest into its overseas funds. It did not say when it might do so.
AsianInvestor understands the QDLP programme is still open for applications, but new licence and quota approvals have been suspended since January as part of Beijing's controls on capital outflows.
Meanwhile, Axa IM’s Hong Kong branch has teamed up with Axa-SPDB to participate in the MRF and QDII schemes.
Under the southbound leg of MRF, Axa-SPDB’s flagship product – the Value Growth Mixed Securities Investment Fund – received approval for sale in Hong Kong in May, and Axa IM will be its representative agent in the city.
The firm has not yet decided when to launch the fund in Hong Kong, which is managed by Jiang Jianwei, whom AsianInvestor named last September as one of the top leading China managers.
Axa IM does not have a plan for the MRF northbound leg now, added Liao, but intends to introduce overseas funds to mainland retail investors through the joint venture’s QDII scheme.
Axa-SPDB received its QDII licence last November, but is awaiting quota from the foreign exchange regulator, as it has been halted since last March due to capital outflow controls.
Meanwhile, Axa IM has been ramping up its focus on retail business in Asia in recent years, having registered its first funds for retail sale in Singapore in mid-2014, when it also added to its range of Hong Kong retail products.