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.
ôLooking ahead, competition is expected to be stiffer than ever and the market will be more volatile this year,ö says Wheatley, who made the remarks at an awards presentation by data provider Lipper. ôIn such a challenging period, we need to continue attracting quality market participants and investors, which will in turn facilitate the growth of the overall market.ö
Wheatley noted in particular that the fund management industries of Hong Kong and China would benefit from stronger ties with one another. He expects more mainland fund management companies to establish operations in Hong Kong under the Closer Economic Partnership Arrangement (Cepa), which will boost the growth of the territoryÆs fund management industry. China and Hong Kong reached a further understanding in 2006 to liberalise China market access for qualified Hong Kong service suppliers, under a supplement known as Cepa IV.
ôThis will not only enable mainland fund houses to widen the scope of their activities, but also increase the size of the fund management industry in Hong Kong,ö he says. ôEqually important, our industry players will gain hands-on experience in dealing with mainland investment rules and regulations, as well as serving the investment needs of the mainland.ö
Highlighting the growth in Hong KongÆs fund management industry, Wheatley notes that 257 new retail funds were authorised last year, bringing the number of SFC-authorised funds to 2,077 as at end-January 2008. Data from the Hong Kong Investment Funds Association shows fund sales reached a record high at the end of 2007 when subscriptions to retail funds totalled $45.5 billion, an 87.1% growth over 2006.
Facilitating product innovation, a must in keeping the fund management industryÆs growth figures high, is among the SFCÆs ongoing initiatives.
In November, the SFC authorised the territoryÆs first Islamic fund for sale to retail investors, the Hang Seng Islamic China Index Fund. That fund invests mainly in the constituents of the Dow Jones Islamic Market China/Hong Kong Titans Index, which was licensed to the bank. The fund is managed by Hang Seng Investment Management, a unit of Hang Seng Bank. The fund has been well received by investors in Hong Kong, both retail and institutional. The fund raised more than $20 million within one week of its launch and the fund size grew to $62 million by end-2007.
ôIt is essential for investors to have a range of investment choices which suit different investment needs,ö Wheatley says. ôTo facilitate product innovation, we adopt a disclosure-based approach in respect of a fundÆs investment strategy and fee structure as these features should be subject to commercial decisions. Fund managers are provided with the flexibility in the design of their products as long as they meet our basic structural and operational requirements.ö
Last year, the SFC also authorised eight new exchange-traded funds (ETFs) including one that tracks a commodities futures index. So far, there are 17 SFC-authorised ETFs in Hong Kong with a market capitalisation of about HK$12 billion.
ôOur ETF market has been the largest in Asia ex-Japan in terms of both market value and turnover and has recorded a significant growth as at end-2007,ö Wheatley says. ôThe average daily turnover of Hong Kong ETFs in 2007 was more than double the value in 2006 and was six times higher than that in 2005. This reflects the growing popularity and the strong liquidity of the Hong Kong ETF products.ö
The SFC has also continued to facilitate the processing of UCITS (Undertaking for Collective Investments in Transferable Securities) III fund applications by issuing further streamlined measures for such funds with special product features and specialised schemes. Last year, the SFC authorised the first retail 130/30 UCITS III fund in Hong Kong.
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