Eastspring Investments has appointed a head for its new investment management wholly foreign-owned enterprise (IM-WFOE) in Shanghai and plans to build a team and apply for a private fund management (PFM) licence.
The fund house has named Michael Lu as general manager and Bernard Teo, its head of corporate strategy and M&A, as the legal representative for the new unit, it confirmed to AsianInvestor.
Lu, who joined Eastspring in late February in a consulting capacity, was formerly with Dutch fund house Robeco in Shanghai, where he led the China business for more than 10 years.
Lu's responsibilities have been taken on by existing members of the Shanghai and Hong Kong teams, a Robeco spokesman said. Lu had joined Robeco in 2007 and left in Sept 2017.
Eastspring, the $170 billion Asian asset management arm of UK insurer Prudential, confirmed the WFOE would apply for a PFM licence, which allows entities to manage and sell funds onshore to wealthy and institutional investors.
The firm also has a joint venture partnership with Citic-Prudential Fund Management Company.
FIGHT FOR TALENT
International asset managers have been busy ramping up – or queing to establish – WFOEs in China. Institutional investors and wealth managers could ultimately benefit from the new level of China expertise and broader array of products as well as from potential downward pressure on asset management fees.
Meanwhile, the growing proliferation of WFOEs is fuelling high demand for talent that will be tough to satisfy. As AsianInvestor has reported, with onshore operations becoming more sophisticated, firms are increasingly looking for China country heads with general management skills rather than just strong sales skills and a strong network.
In the shorter term, asset managers and possibly also asset owners could see their teams being raided by firms desperate for competent employees. For example, earlier this month Vanguard announced it had hired the former general manager of Fidelity’s WFOE in Shanghai, David He, as its chief operating officer for China.
As of December 2017, 24 asset managers had won IM-WFOE licences, including Schroders, Credit Suisse, Man Group, BlackRock and Fidelity. One recruiter has told AsianInvestor that he expects that number to potentially hit 50 by the end of 2018.
Once they have won their WFOE, they can apply for a PFM licence. Ten IM-WFOEs have received such licences so far, six of them being awarded since November.
Stewart Aldcroft, senior adviser in Citi's markets and securities services division, told AsianInvestor fund houses are using the WFOE route and applying for PFM licences to prepare for setting up wholly owned fund management licences (FMC) when they are allowed to do so by 2020.
"What they are doing is creating a business to familiarise themselves with how things are done in China, he said. "The regulators want to see relevant experience in China and having a WFOE and PFM licence is one of the ways foreign firms can build that experience."
Nevertheless, there is also a keen understanding that it will be tough to make a success of an IM WFOE with a PFM licence. The reality is many of them will struggle to make money, despite the huge potential market.
There will be challenges ranging from sourcing and retaining employees to making their investment strategy work in China to building a distribution network.
Jolie Ho and Indira Vergis contributed to this story.