Swiss private bank Julius Baer has launched a private-placement China fund for its wealthy clientele that it plans to market to its European investors later this month.
The firm initially applied for a $200 million qualified foreign institutional investor (QFII) quota, but then downsized this to $100 million on account of turbulent market conditions, says Kenneth Ho, Asia-Pacific head of products for Julius Baer.
It received its $100 million quota in mid-May, after which it has six months to deploy the money. The fund, which began trading two weeks ago, can invest up to 30% into H-shares and fixed income and up to 70% in A-shares.
Ho says the preference is for it to comprise 90% equities, including the full 70% A-share exposure. The target size is, in fact, $110 million, with the additional $10 million invested in H-shares. Of that total, the bank has raised $65 million already and is due to start its Europe roadshow on August 28. Ho concedes it will be a tougher sell in Europe, and expects a far stronger take-up in Greater China.
Julius Baer has selected Hong Kong-licensed Simon Murray and Company as its advisory asset manager. The firm has a 10-strong research team based in Shanghai. “They are very much bottom-up, looking for value-driven companies, and they go on 200 company visits per year. We like that approach,” says Ho.
The new fund joins a suite of existing China funds at Julius Baer, with third-party products from Schroders, GAM and BNP Paribas Fortis. “These other funds are more benchmark index type plays, while ours focuses on value-driven stocks in the consumer and infrastructure sectors,” he adds.
Asked whether this was the right time to launch a fund, given ongoing volatility in China’s stock markets, he replies: “I cannot time any market. What I do know is that the Chinese government has put a lot of measures in place which are just taking effect. When the economy stabilises and investors are reassured, they will come back in.”
He points out that A-shares provide attractive diversification benefits to investors owing to their low correlation to other global markets. "Both A- and H-share premiums have contracted to historically low levels, meaning that valuations are now reasonable," he adds.
Julius Baer became the first – and so far only – standalone international private bank to gain a qualified foreign institutional investor (QFII) licence, on December 14 last year. Over 110 international firms have QFII licences, including a wide range of banks and asset managers.
However, how much allocation their private wealth clients get to the A-share market, and how much priority they are given within an integrated firm housing an investment bank and an asset management business, is a matter of conjecture.