Hai Tong Asset Management is set to launch an RQFII fund in Hong Kong this week after obtaining an investment quota from China’s State Administration of Foreign Exchange (Safe).

The firm was awarded Rmb900 million ($143 million) in the fresh batch of renminbi qualified foreign institutional investor (RQFII) quotas, which totalled Rmb93 billion and went to 10 securities firms and one fund management company. It initially said it planned to launch its fund on January 12, but due to demand brought that forward by a day to tomrrow, it stated last night.

In the second batch, E Fund received Rmb1.1 billion, while CICC, Guosen, Everbright, Guotai Junan, Haitong, Guangfa, Merchant and Citic were each awarded Rmb900 million, and Guoyuan and Huatai each obtained Rmb500 million.

The RQFII programme allows Hong Kong subsidiaries of mainland fund management firms and securities companies to invest funds raised in Hong Kong back into the onshore securities market.

Retail investors will be able to buy into the Haitong China RMB Income Fund at Bank of Communication on January 12 with an initial minimum investment of Rmb10,000. In the following weeks, the fund will also be available at HSBC, Standard Chartered and Bank of China. The management fee is 1.2% per annum.

Ben Zhang, Hai Tong AM’s joint managing director, notes that the fund will also be offered to institutional investors including Polaris Asset Management (HK), a fund of funds from Europe, and several long-only investors from Japan, Korea and the US.

The initial minimum investment in the fund’s institutional class is Rmb10 million and the management fee is 0.8% per annum.

However, Jonathan Xie, the asset manager’s deputy head of business development, notes that institutional clients have asked to subscribe to an average of $20-$30 million.

But it is noteworthy that investors may have to pay a higher subscription for this RQFII product as the ceiling is set at 5%, compared to 3% of its Global RMB Fixed Income Fund.

Cheeping Yap, head of securities and fund services for Citi Hong Kong, has previously told AsianInvestor: “Banks want to charger higher front-load fees. If you walk into a bank to buy RQFII product, they may charge you a 5% up-front fee so the consumer bank will have more flexibility on how much discount they give to retail investors.”

Regarding its investment strategy, Wesley Kong, portfolio manager for Hai Tong AM, notes that the fund will focus on government bonds, central bank bills and high-grade corporate debt, equivalent to bonds of AAA or AA+ rating by international standards. He adds that the fund will not invest in China’s A-share equity market to begin with.

Hai Tong was the first to launch a RMB fixed income fund in Hong Kong, and has been investing in the dim sum bond market since August 2010.

Compared with its RQFII fund which will primarily provide investment grade credit exposure, the Haitong global RMB fixed income fund will continue to tap the dim sum market, which Kong notes “has good supply of high yield names, non-Chinese names which do not exist in the onshore market”.

Lin Yong, CEO of Haitong International Holdings, adds that the existing RMB bond fund may invest into the new RQFII fund, if that is permitted by regulators. Meanwhile, Haitong does not rule out the possibility of applying for a new RQFII investment quota solely for the existing fund. 

As of January 5, Hong Kong’s Securities Futures Commission (SFC) had approved 11 RQFII products which will be launched in the coming weeks.

The Da Cheng China RMB Fixed Income Fund will be launched on January 16. Meanwhile, Harvest RMB Fixed Income will be launched before Chinese New Year (January 23); and Guotai Junan Great Dragon China Fixed Income Fund will be available in a similar timeframe.