GF Asset Management (GFAM), the Hong Kong-based investment arm of Guangzhou-based GF Securities, plans to convert one of its private funds into a mutual fund, as an initial step towards entering Hong Kong’s retail market.

A growing number of Chinese fund-management companies (FMC) have been setting up subsidiaries in Hong Kong in the past two years, but most find it tough penetrating the local retail market, mainly due to a lack of brand recognition and track record. Many of them, even those that are leading names in China, only manage private funds dedicated to professional investors.

Hence, instead of launching a new mutual fund, GFAM plans to make its best-performing private fund – an offshore China equity fund – accessible to retail investors. The fund has achieved returns 15% higher than the benchmark (MSCI China) in the past 20 months, and its performance last year is in the top 2.5% of all actively managed China funds.

“We evaluate our yearly performance on a relative basis, but in the long run we aim to achieve absolute returns for our investors," says Michael Wan, GFAM's chief investment officer.

It is costly to launch a new mutual fund, he adds, and converting a private fund to enter the retail market is “in line with our strategy that we focus on building a good track record before trying to enlarge our client base. Good performance is the best selling point of any investment fund product”.

The company is dealing with some operational and administrative issues in converting the fund into a mutual fund and will make the necessary applications in the fourth quarter at the earliest.

Like other Chinese FMCs, GFAM positions itself as a China investment specialist. In terms of private funds, it runs another offshore China equity fund and an offshore renminbi fixed-income fund.

“I don’t see Chinese [asset-management] companies competing for market share, because we are all newcomers to Hong Kong, and the market here, which is being ‘Chinalized’, is growing day by day,” says Wan.

GF Securities (HK), the group's brokerage subsidiary, could also refer clients to GFAM, he adds, which gives it an advantage over some other China fund houses.