Hong Kong’s Hang Seng Bank has won approval to set up the first Sino-foreign majority-owned joint-venture fund house, amid uncertainty among offshore firms over the best way to access mainland clients.
Hang Seng Qianhai Fund Management has received the green light from the China Securities Regulatory Commission (CSRC) to sell mutual funds and asset management services to both retail and institutional clients. It will be the 105th asset manager and 46th fund JV in China’s Rmb7.7 trillion ($1.17 trillion) investment industry.
Hang Seng Bank, a subsidiary of HSBC, has a 70% stake in the JV, while its mainland partner – Qianhai Financial Holdings (QHFH), the financial arm of the Administrative Bureau of Qianhai – holds 30%.
The Shenzhen-based JV will be headed by Liu Yu as its legal representative and chairman. He was previously executive vice-chairman at Hang Seng Investment Management, which has HK$166 billion ($25 billion) under management. The firm did not respond by press time to a query about who would replace Liu.
Andrew Fung, head of global banking and markets, said Hang Seng IM had strong capabilities in index and exchange-traded funds, which the bank plans to make use of for the mainland business.
The JV approach to tapping Chinese clients had fallen out of favour with foreign firms, at least partly because they could not obtain a majority stake in the business.
However, this is set to change. Hang Seng Bank’s approval comes one week after Beijing’s latest pledge to gradually raise the 49% cap on stakes held by foreign financial firms in China’s fund and securities industry. Still, they may need to wait for mainland capital markets to open fully before they see the full benefit of such moves.
Other channels for accessing mainland markets include setting up wholly foreign-owned entities –which firms such as Aberdeen, Fidelity, Schroders and UBS have done – and registering and running products in Hong Kong to sell into China via the mutual recognition of funds scheme (MRF).
But some companies are taking a wait-and-see approach before they decide which route to take, in light of fast-changing mainland regulations. US-based fund house Capital Group has even taken the unusual step of saying it will not use MRF as it does not think it is the best way for it to access China.
Hang Seng Bank had received the initial nod from the CSRC in July last year, after 11 months discussion with QHFH, and started the application process September.
The bank’s controlling stake is based on the Closer Economic Partnership Arrangement Supplement X, signed by Hong Kong and Beijing in August 2013, which allows qualified Hong Kong-funded financial institutions to set up JV fund firms in China.
Under the law, a “Hong Kong-funded" financial institution must satisfy the following two criteria:
- it is a licenced firm registered and headquartered in Hong Kong; and
- if the firm's controlling shareholder is a financial institution, it must satisfy one of the following three criteria: it is registered and headquartered in Hong Kong; or it is a Hong Kong-listed company and at least 50% of its pre-tax income is generated in Hong Kong; or more than half of its senior managers are Hong Kong permanent residents.