There are three South Korean asset managers with fund products that directly access China's capital markets. They will soon be joined by three more.
Korea Investment Trust Company (KITC) and Tong Yang Investment Trust Management have received approval from the China Securities Regulatory Commission to manage A-shares and renminbi cash and bonds. KITC has been granted a $100 million quota from the State Administration of Foreign Exchange (Safe), while Tong Yang is still waiting on a quota.
KDB Asset Management, an arm of Korea Development Bank, is reportedly also preparing a qualified foreign institutional investor (QFII) fund using its parent's existing QFII quota.
There are already QFII funds for the South Korean market provided by Hanwha Investment Trust (an affiliate of Korea Life), Mirae Asset and Samsung Investments.
James Young Jungkyong, head of the alternative investment division at Tong Yang, says his firm has applied for a $400 million QFII quota. He doesn't know if Safe will grant the full amount, but hopes to win a quota in the next few months.
The alternatives division at Tong Yang refers to non-Korean investments, including long-only. With products including global fixed income, global equities and Vietnam equities, it comprises around $1.6 billion of the firm's $10 billion of assets under management.
Tong Yang has worked with Citi to prepare to run a QFII product. The US bank has helped it with documentation and other arrangements such as foreign exchange, and will serve as custodian to the fund. Tong Yang is likely to appoint a mainland-linked or mainland-based asset manager as an advisor to its QFII product, which will be managed by its team in Seoul. Hanwha also appointed Citi last year.
KITC has appointed ICBC as its custodian bank and Huaan Fund Management as its investment advisor.
These products mainly target South Korea's retail market. Domestic institutional investors tend to invest via separate accounts and are less prone to chase 'hot' markets. They will be placed both with affiliated distribution channels, such as banks or securities companies, as well as with third parties.