Boston-based MFS Investment Management intends to open an office in China – likely as a wholly foreign-owned enterprise (WFOE) – but has no plans to participate in the Hong Kong-China mutual recognition of funds scheme.
“We will start with a client-facing office [in China] and a WFOE is quite likely,” said Carol Geremia, co-head of global distribution at MFS, yesterday during a visit to Hong Kong. The team is "knee-deep in research" and will decide on its plan for China by the end of this year, she told AsianInvestor.
MFS has in the past discussed the possibility of a mainland joint venture, she added, but did not proceed. Many international firms have now ditched the joint-venture fund house approach in favour of WFOEs as a means to enter the China market, as the latter model gives them full control over their onshore operations.
MFS is considering setting up a WFOE that would allow it to conduct client consulting and services work, but not to manage funds onshore. The firm aims to hire locally if it proceeds with the WFOE application and gains approval.
To offer private funds to domestic investors, foreign managers will need to obtain permission to set up an investment management WFOE and register with the Asset Management Association of China. On June 30, Beijing gave firms the green light to set up IM WFOEs, with Aberdeen, Bridgewater and Fidelity expected to be the first to do so.
Such firms must manufacture products onshore products and will only be able to raise money and invest it in China. Some suggest these constraints will deter some managers, such as those under the qualified domestic limited partnership (QDLP) scheme, from registering IM WFOEs.
Meanwhile, although MFS does not plan to enter the MRF scheme now and runs no Hong Kong-domiciled funds, it does have investment teams in Hong Kong, Singapore and Japan, comprising 19 staff of a total of 80 in Asia Pacific. It plans to add to this number, said Geremia, but did not indicate a time frame or target figure.
Moreover, the firm – with $418 billion under management, of which $50 billion is sourced from Asia – puts a lot of thought into the importance of locally domiciled products, she noted. “My belief is that local products will be important.”
However, MFS has no immediate plans to launch Asia-domiciled funds. It has a large number of partnerships, including sub-advisory relationships, in the region, noted Geremia. Its tie-ups include those with Japanese firms Nikko Asset Management and Nomura Asset Management, and with Sunlife in Hong Kong. Canadian insurer Sunlife Group is MFS’s parent company.
Another reason why MFS is not keen on the mutual recogntion scheme is that its priority in Asia is the institutional segment, which accounts for 90% of its assets in the region. Globally, the firm has a 50/50 split between institutional and wholesale business in terms of assets under management.
One reason for MFS’s lack of focus on the retail market in Asia has been the level of fund churn among such investors. But Geremia said retail investing behaviour had been changing for the better, with a growing emphasis on retirement accounts and building a long-term investment view.