ICBC Credit Suisse goes solo on QDII investments

As Credit Suisse pulls back from traditional and long-only investing in Asia, managers in the China JV decide they are ready to take over the responsibility for its overseas portfolio.

ICBC Credit Suisse Asset Management's Global China Opportunity Equity Fund was the fifth QDII fund to be launched in China. Now it is set to become the first to be managed without a foreign sub-advisor.

In a notice issued yesterday by the fund house -- which could potentially be Credit Suisse's only asset management venture in Asia if it breaks off from its JV with Woori Financial Group in Korea -- investors were told that Credit Suisse has ceased to act as its foreign advisor to the China global opportunity fund.

Following the termination of the agreement, the day-to-day responsibilities of the fund will be handed over to the JV.

Salman Shoaib, head of asset management for Asia-Pacific at Credit Suisse in Hong Kong, says the original advisory mandate between the JV and Credit Suisse would fall under the scope of the global investors business recently sold to Aberdeen -- a transaction which will be completed by the second quarter of this year. Shoaib, previously the COO for Asia-Pacific at Credit Suisse, recently replaced Tony Illya who retired.

After reviewing the possibilities, managers at ICBC Credit Suisse have decided they are ready to take up the responsibility for the product, which would otherwise be transferred to Aberdeen.

Shaoaib asserts that the termination applies to only one QDII product. Credit Suisse maintains a close working relationship with ICBC, and the termination of the existing QDII mandate does not eliminate the opportunity to arrange a second deal in the future.

Xav Feng, head of research for China and Taiwan at Thomson Reuters Lipper, considers this a maturating of the mainland's QDII investment capabilities. Most Chinese fund houses still lack experience in overseas financial markets. However, Chinese fund houses with QDII products have accumulated the experience they need to be able to handle overseas investments on their own, without the help of foreign advisors. 

For ICBC Credit Suisse, the basic infrastructure has been put in place over the past year. Bank of China has been acting as the fund's domestic custodian, while Citi has been doing the job for overseas markets. The two investment managers in charge at the fund house -- Hao Kang and Cao Guanye -- have been working in the JV since August 2007.

Before Hao was seconded, he was responsible for seeking private equity investment opportunities at Credit Suisse. Prior to Credit Suisse, he spent a decade working for Bank of America, First State Investments, Genesis Capital and a technology venture named Pollex in Beijing. He has a PhD from Monash University in Australia.

Cao was an H-share and QFII manager at Hang Seng Investment in Hong Kong for around eight months before moving to ICBC Credit Suisse in May 2007. Between 2001 and 2006 he was employed by Credit Agricole, most recently as its Asia head of structured funds and investment manager for Asia-Pacific equities. He has an MBA and a masters in law from the Université de Droit, d'Economie et de Science d'Aix-Marseille III.

Credit Suisse says the shareholding relationship between Credit Suisse and ICBC is not in jeopardy in any way.

Recently, Credit Suisse proposed a change in shareholding structure in Woori Credit Suisse Asset Management, its asset management joint venture with Woori Financial Group in Korea. Despite this, Credit Suisse maintains a dedicated focus on distributing relationships for alternative and multi-asset class products in Asia, according to Shoaib.

As at the end of 2008, ICBC Credit Suisse managed total assets of about Rmb75.2 billion ($11 billion) and is the sixth largest fund house in China, up from 21 out of 60 in 2007. The figure makes it the largest domestic bank-affiliated JV in business to date. 

With a 25% equity stake in the firm, Credit Suisse is a minority shareholder against the 55% controlling stake held by ICBC. However, it has been influential in shaping the company's management and product development strategies. A remaining 20% stake in the firm is held by the Chinese conglomerate Cofco, considered a silent partner.

Since the launch of the Global China Opportunity Equity Fund on Valentine's Day last year, it has been a bitter 12 months for the two investment managers of the portfolio. The fund failed to outperform its benchmark, which is 40% based on the MSCI China index and 60% on the MSCI World index. Plus, the fund has been the worst performer across the QDII spectrum.

In the fourth quarter of 2008, it posted a loss of 21.91%, a performance far worse than four other funds launched in the same year.

The fund's AUM stood at Rmb1.16 billion ($170 million) at the end of 2008 compared with Rmb2.2 billion ($323 million) in assets raised during its initial offer period.

¬ Haymarket Media Limited. All rights reserved.