Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
China Southern has already received a $2 billion quota from the CSRC, but its foreign exchange limit is still subject to approval from the State Administration of Foreign Exchange (Safe). It is one of the first fund houses in China to receive the QDII qualification. The first was last yearÆs pilot test with Huaan Fund Management.
SouthernÆs portfolio manager Xie Wei-hong will be working with two assistant fund managers and three Mellon advisors in running the new fund. This will commence the launch of China SouthernÆs first QDII product. Mellon will provide advice service in five areas û asset allocation, portfolio design, risk management, performance monitoring and also transaction management.
60% of the portfolio under the mandate will be invested in developed markets, possibly in US and Hong Kong stocks, and 40% exposure to emerging markets via exchange-traded funds, actively managed equity funds, index funds, and derivatives. No limit has been set for geographic exposure at present, according China SouthernÆs spokesman. Preparation work for the fundÆs launch is underway. It is expected the portfolio will be fully invested in three monthsÆ time.
At present, five classes of financial institutions have been approved by the CSRC to enter the QDII market, subject to approval on individual basis. They include banks, securities firms, insurance companies, fund houses, and recently, trust companies. Only banks and fund houses have actually released related overseas investment products. Other institutions continue to lay the groundwork for QDII offerings.
There are three key differences between the QDII products provided by banks and fund houses, as determined by regulation. Fund QDII investors can gain 100% equity exposure, while with bank QDII, the maximum to stocks or equity funds is limited to 50% and these must be listed or authorised in Hong Kong.
Second, fund QDIIs are allowed to invest in more aggressive equity products in different markets, while banks remain tied to mainly fixed income and structured products. Furthermore, fund houses are permitted to hire external advisors, as in the case of China Southern, while banks have to rely on the internal investment managers and research professionals.
Third, fund housesÆ products appear to be more accessible to the mass affluent market as minimum investment is set at as low as RMB1,000. Entry requirements for bank QDII tend to be in the range of RMB50,000-300,000.
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