Foreign firms sweat to secure China private fund licences

Four foreign fund houses have set up so-called investment management wholly foreign-owned enterprises (IM-WFOEs) in China this year, joining 10 peers that had already done so. Now comes the hard part.

Invesco was the latest to establish one of these onshore entities, on April 13. Credit Suisse and Hong Kong-based Value Partners established their IM-WFOEs last month and Singapore’s APS Asset Management in February. (See table below.)

Both Invesco and Value Partners have said they plan to enter the private fund management (PFM) market by registering with the Asset Management Association of China (Amac). APS and Credit Suisse are expected to do the same.

PFM hurdles

But setting up the WFOE is just the start of the process, said Ying White, head of the China funds and investment management practice at law firm Clifford Chance.

After that, asset managers face many practical issues to address before they can register as private fund companies. Fidelity, for instance, only received its PFM licence on January 3 this year, after establishing an IM-WFOE in September 2015. 

Moreover, the PFM guidelines only came out very recently, so there are a lot of questions about their interpretation, White told AsianInvestor. For example, firms must have “sufficient infrastructure” to conduct the proposed business, she noted. “But what is ‘sufficient infrastructure’?”

Date of establishment of IM-WFOEs in China (source: Z-Ben Advisors)

Foreign asset managers also remain concerned about capital repatriation from the mainland, said White. “They want to know how they can take their profits out of their China businesses. There’s been so much reporting about capital controls, so naturally this has been an item on the agenda.”

There are a number of issues that require discussion with the regulator, she added.

The PFM requirements include having the right staff in place, sufficient business relationships with distributors and prime brokers, a clear product strategy set out for the next year or two, said Ivan Shi, head of research at Z-Ben Advisors.

“It’s better to have all this done before the application,” he told AsianInvestor.

Steady stream

Shi said he did not know how many WFOE applications were in the pipeline, but he envisaged a steady stream this year.

Indeed, US firms MFS Investment Management and Principal Global Investors and Switzerland’s Pictet Asset Management have all indicated a desire to set up WFOEs in China. Pimco has also said it is likely to go down this route at some point.

And most foreign asset managers will be targeting private fund company registration, Shi noted. But passive-fund focused managers are less likely to do so, as others have suggested.

Plans and progress

Meanwhile, Neuberger Berman last week unveiled the head of China institutional business for its new WFOE in Shanghai. William Hui had joined in January from Deutsche Asset Management.