Huaan plans second QDII, readies FTSE 100 ETF

Another fund house queues up to launch a QDII exchange-traded fund and, like FTSE, is intent on repairing its reputation in China.

Investors in Huaan Fund Management's previous QDII product and troubled domestic exchange-traded fund linked to the SSE 180 index have not yet received their payouts. (The former was linked to a batch of Lehman Brothers-guaranteed notes and Lehman-managed funds, and was frozen following the bank's collapse in September 2008; while the problem with the ETF stems from a miscalculation over its dividend payout on April 13 last year.)

Nonetheless, Huaan is intent on rebuilding its reputation in both overseas investing and ETF expertise, this time with a QDII ETF launch on the Shanghai Stock Exchange (SSE).

The lucky index provider to Huaan this time will be the UK's FTSE International. Mark Makepeace, founder and chief executive of FTSE International, was in Shanghai yesterday to sign away the exclusive licensing rights to Huaan to use the FTSE 100 index in an ETF product. Zhang Yujin, CEO of the SSE, was present to witness the ceremony.

FTSE and the Shanghai bourse agreed only last Thursday to make peace over their long-running infringement lawsuit, with FTSE providing the SSE with an undisclosed sum as compensation. The index provider was sued by the exchange back in 2006 for reselling SSE data to third parties for the creation of investment products without the bourse's approval.

That's all water under the bridge now, says Makepeace. The initiation of the partnership with SSE and Huaan will provide a foundation for further developments, with the potential for licensing more FTSE indices to China-listed ETFs.

Huaan has a checkered past with a long list of infractions, ranging from its execs' embezzlement of government pension money, to intervention into the firm's management by the Shanghai city government. That's not to mention its two troubled products; the still-frozen QDII launched with Lehman Brothers and its high-profile NAV miscalculation for its domestic ETF.

But when answering questions about whether Huaan was a sensible choice as its first ETF partner in China, Makepeace said FTSE had not considered another firm. Huaan was one of the very first players FTSE spoke with in China, and it's certainly too large and fast-growing a fund manager to ignore.

Makepeace will continue his whirlwind Asia-Pacific tour this week. Besides patching up relations in Shanghai, his charm offensive involves pushing FTSE's newly launched suite of after-tax indices customised for Australian superannuation-fund clients, and speaking with more sovereign fund clients on the use of FTSE's suite of index products. He says FTSE's suite of customised indices and strategy-embedded products are still seeing good demand from Asian clients.

Upon approval of its FTSE 100 ETF, Huaan will join other Chinese fund houses planning to launch QDII ETFs this year. Those confirmed include: China Southern, which will launch a S&P 500 ETF from Shenzhen; China Asset Management, with an ETF linked to the Hang Seng Index; and Harvest Fund Management, with the Dow Jones Industrial Average as its underlying.

At the end of last year, the Shanghai government, which controls Huaan through its various holding companies and its investment arm, Shanghai International Trust, pressured CEO Yu Miaogen to bow out from active management and is seeking to rejuvenate its executive ranks by appointing an external manager with overseas experience. In January this year, a SSE representative in Hong Kong named Li Keqin was tipped to have won the role. However, as this story went to press, the search appears to be continuing.

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