Fidelity Investments has applied to the China Securities Regulatory Commission to open a representative office in Shanghai, which will be run by Anne Lam, currently director of institutional business in Hong Kong.
The firm is famous for preferring independence and avoiding joint ventures, which in its experience are rarely successful in the fund management industry. China does not allow foreign fund houses to operate independently; they must take a 33% stake in a joint venture (that figure will rise to 49%).
"Our view of China has not changed," says Douglas Naismith, Fidelity's managing director in Hong Kong. "It is an interesting market. But the problem for us was how to access it given our internal belief that it is better to control our business."
What has changed is Fidelity's confidence that China will liberalize in the foreseeable future. "We still can't write a business plan for China but the market is deep enough for us to want to develop a business when it opens," Naismith explains. "The pace of change is so fast, we now feel there is a greater chance of China deregulating its 49% ownership rule in two or three years, than there was two years ago. We need to be much more engaged in China than we had needed in the past five years."
New Shanghai rep Lam has been with Fidelity's institutional business in Hong Kong for eight years. Her family is from Shanghai and she speaks Shanghainese, as well as Mandarin, Cantonese and English.
The firm will cover her duties in Hong Kong with Nick Rogers, who starts March 1st as head of institutional business. Rogers comes from Schroders in Guernsey, where he had been managing private client money after spending nearly two decades in Asia.
In addition, Conrad Cheng will soon return from Singapore, an office he had helped set up last year under Andrew Jenkins. Cheng will return to support Rogers once a replacement in Singapore is formalized. Naismith says the firm will probably add one more lower-level sales person to the institutional team in Hong Kong this year.
The Shanghai rep office will have three functions: provide knowledge of the local market, be a platform to lobby for deregulation, and coordinate potential institutional money leaving China (under, say, a Qualified Domestic Institutional Investor scheme, or for the National Social Security Fund or other government organizations).
The Shanghai office will also house Fidelity fund managers and analysts visiting from Hong Kong, and ultimately a separate team of analysts focused on A shares. Once that is established, the firm will consider applying for its own Qualified Foreign Institutional Investor licence; to date Fidelity has not put money into A shares via a QFII licensee, although it has used derivate structures to replicate such exposure. The Shanghai office will hold up to 10 people.