The Shenzhen government has issued three more licences under a new programme that allows Chinese fund houses to invest in foreign alternative assets on behalf of local clients.
A total of four licences have now been approved under the qualified domestic investment enterprise (QDIE) scheme, said a source familiar with the pilot programme.
The three newly approved firms are: China Merchants Wealth, a subsidiary of China Merchants Fund which in turn is owned by China Merchants Bank; Great Wall Fu-Hao Fund Management, a subsidiary of brokerage Great Wall Securities; and Shenzhen Qianhai CCT Asset Management, a subsidiary of CCTIC International, the Hong Kong arm of trust company China Credit Trust.
The first company to be granted a QDIE licence was mutual fund house China Southern Capital, a subsidiary of Shenzhen-based China Southern Asset Management, earlier last month, as reported.
Great Wall Fu-Hao plans to launch a private equity fund focused on mergers and acquisitions in Europe, targeting small and mid-sized companies in industries like healthcare equipment, precision instruments and industrial automation. The fund will partner with a Europe-based private equity manager, said Xu Ming-Bo, manager of international business at Great Wall Securities.
Meanwhile, China Southern is developing a segregated-account product that will invest in overseas absolute return assets with low volatility.
Great Wall Fu-Hao intends to market its PE fund to institutions and corporate clients, while China Southern Capital plans to distribute its product to its high-net-worth clients.
China Merchants Wealth has not decided what products it will offer, nor has it applied for a quota, said a spokeswoman for the firm.
A spokesman for Shenzhen Qianhai CCT Asset Management declined to comment, saying the firm was processing its product and quota application.
The State Administration of Foreign Exchange (Safe), a division of the Chinese central bank, granted Shenzhen a total of $1 billion in QDIE quotas in mid-2014. The Shenzhen Municipal Office of Financial Services quietly launched the scheme last December and started handing out licences last month.
After winning a licence, firms are required to set up a QDIE legal structure and apply for a quota. The rules allow a variety of different entities, including partnerships and segregated accounts, said Sandra Lu, partner at Shanghai-based Llinks Law Offices.
Given their different specialities, the firms will target different alternative assets, said the source.
To invest in QDIE products, domestic institutions must have net assets of at least Rmb10 million ($1.6 million) and individual investors must have minimum financial assets – such as equities, bonds and trusts – of Rmb3 million.
Meanwhile, the legal structure created by licence-holding firms must have assets of at least Rmb30 million. The minimum single investment is Rmb2 million – double the threshold for segregated-account products regulated by the China Securities Regulatory Commission.
QDIE was set up as Shenzhen’s counterpart to Shanghai’s qualified domestic limited partnership (QDLP) scheme. But QDIE has several similarities to the qualified domestic institutional investor (QDII) scheme, in that quota is approved for Chinese firms and on a case-by-case basis depending on the firm or product.
The QDIE programme is being led by the Shenzhen Municipal Office of Financial Services, in conjunction with the Qianhai Development Authority and Safe.