Manulife Asset Management has won what it believes to be the first CNH bond mandate awarded to an asset manager by an institutional investor.
The firm, the global asset management arm of Canadian based insurance group Manulife, will manage a $15 million exposure for the Hong Kong Hospital Authority Provident Fund Scheme, in an announcement due to be made public later today.
This is the firm's second mandate for the Hospital Authority in the past year. Last July it was picked to manage the authority’s first Hong Kong dollar bond investments ($88 million) following an RFP involving around 10 firms. That was for its Occupational Retirement Scheme Ordinance (Orso) programme, investing on behalf of about 35,000 staff members in Hong Kong’s public hospitals.
Asked if this new CNH sub-account was a competitive pitch process or more of a formality given its existing working relationship with the Hospital Authority, Michael Dommermuth, president and head of Asia at Manulife Asset Management Asia, says: “It was not a formality.”
Heman Wong, executive director of the Hong Kong Hospital Authority Provident Fund Scheme, notes that the CNH market is still in its infancy and can be difficult to navigate, adding that Manulife AM’s experience in Hong Kong-based fixed-income investments, and Asia-wide bond investments, including China, meant it felt comfortable to extend its existing mandate.
“There is clearly significant potential to generate returns from Hong Kong’s offshore RMB market and we believe that there is an advantage to being an early adopter in this market,” says Wong.
Dommermuth says Asian fixed income is a core competency for the firm, noting that Manulife is already a major bond investor and holds $22 billion to $25 billion of fixed income assets across the region. He estimates it also owns about 20% of the Hong Kong dollar bond market.
The firm manages about $1 billion of RMB fixed-income assets in China, while its qualified foreign institutional investor (QFII) RMB bond fund launched last year amounts to about $40 million. Plus it currently manages a CNH endowment product called Jade.
Manulife AM boasts 16 credit analysts based in the region, including three in China, as well as a fixed-income team in Beijing through joint-venture asset management business Manulife Teda, of which 30% of its assets are in fixed income.
“As the CNH market develops, it exposes investors to a huge number of names that have never been available before,” Dommermuth says. “We think our on-the-ground presence is going to be a crucial because those issuers are not well covered by the rating agencies.”
Manulife AM is a firm believer in the ascent of the CNH market, he adds, largely driven by the internationalisation of the renminbi with a view to becoming a reserve currency eventually.
As such, Dommermuth says Manulife is ramping up its investment presence in the CNH market on behalf of institutional investors. Its recently launched Asia Total Return strategy, with about 14% of the portfolio invested in the CNH market.
Asked if other CNH mandates were currently on offer in the market, he says he is not aware of any, but adds: “It is a market that we will be actively pursuing. We are forecasting dramatic growth for the CNH market. Both foreign and domestic companies within China will look for a cheap choice of funding to meet their RMB needs within China.
“But you would also expect that as China fully liberalises its currency regime and places such as Singapore and elsewhere also become RMB hubs, the issuance from other non-Chinese companies will broaden.
“This [broadening] will be driven not only as a result of being a cheap source of financing, but as the ability to hedge the currency grows. As the market for swaps and non-deliverables develops within the CNH market, you will see a broadening of the issuance base.”
The CNH deposit and bond market has been expanding at breakneck speed. The RMB deposit base currently stands at Rmb510.7 billion ($79 billion) and is forecast to hit Rmb1 trillion by the end of this year, says Deutsche Bank.
In terms of CNH bonds issued in Hong Kong, the market has surged five fold over the past 12 months to stand at Rmb118.4 billion, notes the German bank. Last month 11 CNH bonds were issued valued at a total of $2.2 billion, compared with $1.7 billion via 10 deals the month before, according to data provider Dealogic.
Separately, Manulife Asset Management announced earlier this month that it had been awarded an $89 million Japan core fixed-income active mandate by Daiwa Asset Management. This was to be added to Daiwa’s Japan Bond Select platform, a part of their wrap account product Daiwa Fund Wrap. Manulife AM was one of three managers chosen to be added to this platform.