French fund house BNP Paribas Investment Partners (BNPP IP) sees its new Shanghai office as a way of capitalising on China's financial liberalisation as institutional clients seek new investment avenues.
Registered in Shanghai's free-trade zone (FTZ) but physically situated elsewhere in the city, the firm's new China subsidiary – BNP Paribas Investment Advisory (Shanghai) – opened for business last week.
The wholly foreign-owned enterprise (WFOE) has four support staff under general manager Danny He and plans to hire up to 20 more over the next 18 months, including a business development team.
“The new office is based on our faith in the opening up of China,” said Cheng Tan-Feng, BNPP IP's Greater China head in Hong Kong. The WFOE is well positioned to benefit from policies in the FTZ that give foreign firms a freer rein to conduct business, he added.
Despite concerns about the slow development of FTZ policies, Cheng said the regulations simply needed time to be fully resolved. He sees only limited potential downsides to working in the zone.
“China has a new range of investors, especially the insurance companies,” he noted, referring specifically to the country's expanding pool of institutional clients emerging.
Given that mandates in China are typically won via face-to-face dealings with clients, Cheng was keen to stress the importance of having a team on the ground. But the firm will also use traditional – and more passive – approaches to win business, including through requests for proposals.
WFOEs have become a new way for foreign financial firms to access onshore clients in China, but opinion is divided on their merits (see a feature on this in the latest December issue of AsianInvestor magazine).
A WFOE allows overseas firms 100% ownership of a subsidiary business. Until recently they had been capped at 49% ownership of a Sino-foreign joint venture. While the WFOE is not allowed to manage money or sell products directly, it is able to service clients as an adviser.
However, rules governing WFOEs remain unclear. The State Administration of Industry and Commerce prohibits them from conducting sales and management business regulated by the China Securities Regulatory Commission (CSRC), but does not clearly set out what activities they are allowed to undertake.
Asked if the regulatory grey areas were a concern, Cheng said BNPP IP's subsidiary was following the FTZ philosophy of a "negative list" of prohibited activities, with internal guidance provided to staff. He added there was a developing framework of rules coming from consultants and that he was confident about the gradual opening of the market.
BNPP IP also has a 49% stake in a joint venture, HFT Investment Management (HFT IM), established in 2003 with Haitong Securities. But while some foreign managers such as BNY Mellon and State Street Global Advisors made moves to exit their China JVs this year, BNPP IP still sees value in HFT IM.
Cheng said that its JV remained core to the firm's creation of renminbi products and that BNPP IP continued to be the key platform for the JV's overseas sales.
The opening of its Shanghai WFOE also reflects BNPP IP's shift in focus in its Asia-Pacific sales structure. In December last year the firm identified three segments in its regional distribution/retail network: official institutions (central banks, sovereign wealth funds, public pension funds); private banks and family offices; and insurance companies and endowments, as reported.
Cheng said the segmented sales approach remained in place, but that the Greater China market, which he is spearheading, had become the top priority. He cited Chinese insurance companies as an example. Given their widely different approaches to matters such as internationalisation of the renminbi, he noted, his firm needed a local entity to understand their needs.
BNPP IP Asia Pacific had total assets under management of €45.6 billion ($56.5 billion) as of September this year.