Citi the first to distribute global funds in China
Schroders will provide six of its international mutual funds for CitibankÆs QDII product.
Citibank has been given approval by the China Banking Regulatory Commission to introduce global mutual funds to mainland Chinese investors through its onshore branch network, says Anand Selva, Shanghai-based executive vice president at the bank.
ChinaÆs qualified domestic institutional investor (QDII) program, launched in 2006, was bolstered in May when the CBRC allowed commercial banks operating onshore to include Hong Kong-authorised mutual funds in their QDII offerings, effectively adding global equities and other asset classes to the mix.
Among the first banks to offer QDII programs were Bank of China and ICBC. BoC provided a fund of funds that invests in global balanced funds managed by Credit Agricole Asset Management and Fidelity Investments. ICBC followed up in June with a global equity QDII fund sub-advised by JPMorgan Asset Management.
These and other bank QDII products were introduced as closed-end products with a starting subscription period. Citi is the first to directly offer an existing series of offshore mutual funds to mainland investors, introducing an umbrella fund comprised of six products managed by Schroder Investment Management. ôThese funds are open-ended and are the first international funds to offer daily liquidity,ö Selva notes.
This also marks the first mutual funds Citibank is distributing in China. To date its QDII suite has included foreign-currency principal-protected structured notes; it also sells renminbi-denominated unit-linked insurance products, outside the QDII regime.
As global funds do fall under the CBRCÆs QDII regime, Citibank and Schroders have not required approval from other regulators such as the China Securities Regulatory Commission.
Schroders has been one of CitibankÆs strategic fund providers throughout the Asia-Pacific region for 10 years. As Citibank thought about how to approach the concept of offering global funds in China, it wanted a partner that could provide choice as well as bring expertise when it comes to helping educate investors.
The Citibank QDII product, called the Schroder International Selection Fund, consists of six diverse products covering US money markets, global bonds, emerging-market debt, a global equity thematic fund for energy stocks, a Bric (Brazil/Russia/India/China) equity fund and a global equity yield fund that invests in stocks paying dividends.
ôThis gives investors choice and access to asset classes they seldom are exposed to,ö Selva says. Citibank will see which products seem to attract the most interest before embarking on further global fund offerings; he would not go into detail about numerical targets.
These products are going to be more expensive, however. The typical domestic equity mutual fund costs investors 1.75%, but CitiÆs international line up charges front-end loads ranging from 0.5% for money-market funds to as high as 3% for equity funds, although investors who buy in volume can secure discounts.
The A-share marketÆs relentless expansion has continued to make QDII a tough sell for banks in general, and the higher fees will be a particular challenge, but Selva says it is important to educate investors about international standards, in both product and in fees.
He believes the biggest challenge is investor education. The Schroder series will be accompanied by a new, back-to-basics guide on fund investing published by Citibank, and it intends to embark on a campaign of seminars and other educational efforts.
Compared to the national banks such as BoC and ICBC, CitibankÆs branch network in China is tiny: 20 branches in seven cities, and this could be seen as a hurdle to sales. But the same has been true in many regional markets, yet Citibank has positioned itself as the premier distributor of investment products.
Selva says structured products will continue to be CitigroupÆs QDII mainstay. Some of these customers will ôgraduateö up the risk curve to try mutual funds, while Citibank has another segment of customers ready to invest in higher-risk products.
ChinaÆs qualified domestic institutional investor (QDII) program, launched in 2006, was bolstered in May when the CBRC allowed commercial banks operating onshore to include Hong Kong-authorised mutual funds in their QDII offerings, effectively adding global equities and other asset classes to the mix.
Among the first banks to offer QDII programs were Bank of China and ICBC. BoC provided a fund of funds that invests in global balanced funds managed by Credit Agricole Asset Management and Fidelity Investments. ICBC followed up in June with a global equity QDII fund sub-advised by JPMorgan Asset Management.
These and other bank QDII products were introduced as closed-end products with a starting subscription period. Citi is the first to directly offer an existing series of offshore mutual funds to mainland investors, introducing an umbrella fund comprised of six products managed by Schroder Investment Management. ôThese funds are open-ended and are the first international funds to offer daily liquidity,ö Selva notes.
This also marks the first mutual funds Citibank is distributing in China. To date its QDII suite has included foreign-currency principal-protected structured notes; it also sells renminbi-denominated unit-linked insurance products, outside the QDII regime.
As global funds do fall under the CBRCÆs QDII regime, Citibank and Schroders have not required approval from other regulators such as the China Securities Regulatory Commission.
Schroders has been one of CitibankÆs strategic fund providers throughout the Asia-Pacific region for 10 years. As Citibank thought about how to approach the concept of offering global funds in China, it wanted a partner that could provide choice as well as bring expertise when it comes to helping educate investors.
The Citibank QDII product, called the Schroder International Selection Fund, consists of six diverse products covering US money markets, global bonds, emerging-market debt, a global equity thematic fund for energy stocks, a Bric (Brazil/Russia/India/China) equity fund and a global equity yield fund that invests in stocks paying dividends.
ôThis gives investors choice and access to asset classes they seldom are exposed to,ö Selva says. Citibank will see which products seem to attract the most interest before embarking on further global fund offerings; he would not go into detail about numerical targets.
These products are going to be more expensive, however. The typical domestic equity mutual fund costs investors 1.75%, but CitiÆs international line up charges front-end loads ranging from 0.5% for money-market funds to as high as 3% for equity funds, although investors who buy in volume can secure discounts.
The A-share marketÆs relentless expansion has continued to make QDII a tough sell for banks in general, and the higher fees will be a particular challenge, but Selva says it is important to educate investors about international standards, in both product and in fees.
He believes the biggest challenge is investor education. The Schroder series will be accompanied by a new, back-to-basics guide on fund investing published by Citibank, and it intends to embark on a campaign of seminars and other educational efforts.
Compared to the national banks such as BoC and ICBC, CitibankÆs branch network in China is tiny: 20 branches in seven cities, and this could be seen as a hurdle to sales. But the same has been true in many regional markets, yet Citibank has positioned itself as the premier distributor of investment products.
Selva says structured products will continue to be CitigroupÆs QDII mainstay. Some of these customers will ôgraduateö up the risk curve to try mutual funds, while Citibank has another segment of customers ready to invest in higher-risk products.
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