China’s first JV fund house eyes Hong Kong rollout

China Merchants Fund aims to build a Hong Kong business organically or via acquisition in a drive to expand its international business, which makes up just 1% of assets overall.
China’s first JV fund house eyes Hong Kong rollout

China’s first joint-venture fund house is looking to roll out in Hong Kong this year in an organic build-out or via acquisition to catch up with peers in RQFII and broaden its international reach.

China Merchants Fund (CMF) was established in 2002 with shareholders China Merchants Bank (33.4%), China Merchants Securities (33.3%) and ING Investment Management (33.3%).

It started its international business in 2009 after obtaining a qualified domestic institutional investor (QDII) quota of $500 million. It subsequently launched a QDII global resources equity fund in March 2010 and an S&P Bric Index QDII fund in February last year.

In addition, CMF is providing sub-advisory services for two qualified foreign institutional investors (QFIIs) – a European asset manager and a Korean company.

However, head of CMF’s international business, Tony Liu, confirms these international activities at present comprise just over 1% of the firm’s overall AUM, which he declines to reveal.

“We are lagging behind in renminbi-denominated qualified foreign institutional investor (RQFII) business and now we are determined to catch up,” Liu tells AsianInvestor.

The RQFII scheme was introduced last December to allow Hong Kong subsidiaries of Chinese fund companies and securities firms to raise renminbi offshore and invest back into the onshore securities market.

An initial quota of Rmb20 billion ($3.1 billion) was announced to be shared among firms approved for a licence, and already this sum has been allocated in full to 21 companies: nine FMCs and 12 securities firms.

As at January 19, Hong Kong’s Securities and Futures Commission (SFC) had approved 17 RQFII funds for distribution.

“If it’s a relay race, we are behind in the first leg, but will catch up in the second and third,” Liu says in reference to the RQFII scheme.

He confirms that CMF plans to expand into Hong Kong this year: “We are considering all the options to develop an asset management business, either building from ground zero or fast-tracking through acquisition.”

He expresses confidence that this cross-border venture will be successful based on the distribution capabilities and brand strength of China Merchants Bank in Hong Kong, and that it will boost the future revenues of CMF’s international business, although acknowledges that any impact on the bottom line will not be material until next year at the earliest. 

For 2012, he adds that CMF plans to launch another new QDII stable income fund tapping long-term appreciation in developed markets, and will strive to work more closely with external managers and to win more QFII clients.

As a step in the right direction, CMF is in line to provide sub-advisory to Earnest Partners (EP), a US-based asset manager which was among a batch of foreign institutions awarded a QFII licence last December. It is now awaiting a QFII quota from China’s State Administration of Foreign Exchange (Safe).

CMF signed a cooperation agreement with Earnest Partners in October 2009, although the business collaboration has only just started in many areas.

“We hope to leverage EP’s research capability and investment expertise in the US and global market,” says Liu, adding it also hopes to capitalise on new client introductions.

In return, he says CMF “will provide detailed research work on specific companies and industries requested by EP, and fully support its business development in China.”

Liu stresses that both sides will work closely to capture opportunities as they emerge in China and overseas. And he points out that with Safe typically only awarding quotas no bigger than Rmb100 million to single QFII investors, CMF will continue to use its research capabilities as a revenue generator.

“Even if [potential clients] don’t have QFII quota to invest in the A-share market, we can help them to cover overseas listed China stocks beyond their reach,” he says.

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