Fullerton Fund Management and Man Group were each granted private fund management (PFM) licences on Thursday, doubling the number of foreign fund managers now able to sell their branded private securities investment products directly to institutional and high-net-worth investors in China.
Singapore-headquartered Fullerton, the first Asia-based fund manager to get a PFM licence for its wholly foreign-owned enterprise (WFOE) in China, is looking to debut with an equity fund, Mark Li, general manager and head of China sales told AsianInvestor.
“China’s a big, big, focus for us,” Fullerton's chief operating officer Jeff Plein has also informed AsianInvestor*.
Meanwhile, London-headquartered Man Group, the first hedge fund manager to attain PFM status, is working on a quantitative strategy, said a source familiar with the business.
The newly minted PFM statuses were granted by the Asset Management Association of China (Amac) after Fidelity blazed a trail with the first licence in January and UBS Asset Management followed in July.
Under the terms of a licence, asset managers must launch new products within six months.
UBS AM has products in the pipeline covering China onshore equities, fixed income and multi-asset, Aries Tung, its China head of strategy and business development told AsianInvestor in July, but it hasn’t filed a product yet, according to Amac website. Fidelity launched an onshore bond fund in May.
The Fullerton WFOE, which changed from an investment advisory WFOE to an investment management one in June to apply for the licence, is headed by Li and has about a dozen staff, covering investment, sales and general management. “We [will] look to add on to our compliance and trading functions, as well as further build out our investment teams,” Li said.
COO Plein said Fullerton will replicate the the footprint and systems that it has in Singapore at its new Shanghai operations and do it in a way “where we have the right controls and transparency into that business from the home office so that we can manage the regulatory requirements that we see coming out of China".
Man Group's WFOE, also based in Shanghai, is headed by Li Yifei and has three staff in total, according to Amac. It’s making senior hires in compliance and investment management.
Just how quickly more foreign fund houses get PFM licences in China is unclear.
There are at least 14 other foreign firms with investment management WFOEs that could conceivably apply. And Andrew Lo, head of Asia Pacific at one of these firms, Invesco, said on June 20 that his firm would apply for a PFM licence “very soon”, with an initial focus on building A-share capabilities. BNY Mellon said in July it had set up an IM-WFOE but had not yet sought a PFM licence.
Even so, a source in Shanghai familiar with the PFM licensing process for foreign asset managers told AsianInvestor in July that some applications had outstanding issues that the fund houses first needed to iron out with the regulator.
The key challenge facing foreign fund houses is how to make their Chinese businesses profitable, say industry observers. That's because of the costs associated with complying with local regulations, devoting time and resources to hiring, setting up an office and injecting the business with capital -- and all while facing tough competition from domestic fund managers.
Other challenges include: catering for Chinese investor expectations for constant high returns; the extent to which they can apply the technical investment advantages deployed in overseas markets; and how deeply they can cultivate client bases if they don't have a local shareholder.
That said, big foreign brand names are well known among mainland investors, and domestic Chinese fund houses have already voiced concerns about increased competition from foreign players.
And it’s important foreign fund managers join trial programmes such as the PFM scheme and get more familiar with the Chinese authorities, one executive at a leading mainland private fund manager told AsianInvestor.
That way they can get in early and be among the first and biggest beneficiaries when bigger privileges are granted and the market opens up more in the future, the executive said.
*The comments are taken from a Q&A interview Plein did with AsianInvestor in the published August/September issue of our magazine.