BlackRock joins QDLP as Shanghai scheme expands

The world’s largest asset manager has won a licence and quota for Shanghai's alternatives investment programme. The move comes as China's rival cross-border schemes aggressively grow their business.
BlackRock joins QDLP as Shanghai scheme expands

Global fund house BlackRock has been awarded a QDLP licence and quota, as the Chinese investment scheme continues to expand.

The move highlights the fact that a number of large global asset managers with traditional fund business are now viewing the cross-border alternatives programme as a new way of accessing the China market.

BlackRock, the world’s largest asset manager, won a qualified domestic limited partner (QDLP) licence and a $100 million quota about three weeks ago, said a spokesperson at the Shanghai Financial Service Office (FSO), which made the award. This was around the same time that the FSO also approved a licence for Shanghai-based Chinese fund firm China International Fund Management (CIFM).

BlackRock’s vice-chairman Philipp Hildebrand spoke to the media about the licence in Bangkok on Tuesday (July 21), saying that “it is a long-term proposition and we are ready to stay for duration,” Reuters reported. When contacted, BlackRock did not respond to AsianInvestor's requests for comment.

Two sources said that BlackRock planned a QDLP product which would invest in one of the firm’s global fund of hedge fund strategies. CIFM’s QDLP product will invest in a strategy managed by hedge fund firm Highbridge Capital Management.

The QDLP pilot programme was first launched by the FSO in September 2013 to allow foreign hedge fund managers to raise money in mainland China to invest overseas. So far the scheme has issued 13 licences.

It comes after three global asset managers - UBS Global Asset Management, Deutsche Asset & Wealth Management and Nomura Asset Management - were given QDLP approval in the second batch of licences in March. The programme has expanded from hedge funds and alternatives to overseas traditional mutual funds.

“The programme has expanded its investment scope with the aim of providing more choices to domestic investors,” said a Shanghai-based source familiar with the scheme. “Under Shanghai’s QDLP, overseas mutual funds with a long-term stable track record are allowed to distribute on the mainland via a private fund structure. Foreign managers have to submit details of the proposed fund when they apply for the licence, while the FSO will decide the approval after due diligence by a committee.”

The scheme has expanded rapidly this year. In terms of quotas, each licensed firm this year has been awarded $100 million, up from $50 million in the first batch. In terms of eligible managers, it has expanded from alternatives managers such as private equity and real estate to global managers running traditional funds and to domestic fund companies.

The first batch of foreign hedge funds have used up quotas of $300 million, and of those, four firms - Citadel, Canyon, Och-Ziff and Man Group – have been the most enthusiastic and optimistic about demand for their QDLP products. Two other foreign hedge funds - Oaktree Capital and Winton Capital – also won a QDLP licence in the first batch of approvals, but have instead issued products via the qualified domestic institutional investor (QDII) scheme. Some of the first batch of licensed managers have received additional quotas, an FSO spokesperson confirmed.

QDLP has become a new route for global managers to build their footprint in China with 100% ownership of investments. They need to set up a wholly foreign-owned enterprise (WFOE), and then team up with a local firm to distribute the products. Market observers said the licensed firms still needed to overcome difficulties to get their initial product launch off the ground.

“Shanghai has changed how they approve the QDLP licence. They approved it in batches previously but now it is on an individual basis,” said Stephen Baron, deputy director of strategic solutions at Shanghai-based consultancy Z-Ben Advisors.

Baron noted that the programme has been growing aggressively, as evidenced by the expansion of the quotas. “It is really a programme to compete with other national [cross-border investment] schemes,” he said, and “certainly a great route for global managers looking to access local high-net-worth individuals who clearly have an interest in global exposure.”

But as the world’s largest fund manager, BlackRock’s participation could be a serious indication of global asset managers’ interest in QDLP as a strategy to access China.

“I think it is going to pick up and gain more competitors,” said Baron. Certain foreign firms considering QDLP tended to be stronger in the traditional funds business than alternatives, he added.

Value Partners, a Hong Kong-based manager with both traditional fund and hedge strategies, said in its annual report in March that it planned to apply for QDLP status to boost cross-border flows.

Similar programmes in other cities are expected to spark provincial rivalries. Shenzhen launched the qualified domestic investment enterprise (QDIE) earlier in January and the city expects to hand out 15 licences this year. Qingdao launched another QDLP scheme in February but has not yet approved any licences. Market observers said these programmes have adopted different positionings in serving the country’s capital account liberalisation – such as targeting different-sized firms – while they fight for flows.

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