Chicago-based Northern Trust has had a representative office in Beijing since 2005, so has been limited in what it can do for mainland Chinese customers. The asset-management and custodian firm has until now provided client services from Hong Kong or Singapore.
But the approval of a branch licence by the China Banking Regulatory Commission in early August means it can directly support institutions in China with global custody, accounting, performance measurement and investment mandate compliance monitoring services.
The firm is also in the process of applying for a qualified foreign institutional investor (QFII) quota, which it could use to buy A-shares on its clients' behalf, says Michael Wu, Beijing branch manager at Northern Trust. Until then, it will continue to provide asset-management services from Hong Kong.
The new licence will allow the firm to build closer ties with clients and thus help build the base of domestic customers seeking to invest in overseas markets, adds Wu. “With more and more QDIIs [qualified domestic institutional investors] investing overseas, we hope to expand our relationships with these firms,” he says.
“We will wait to see the level of investment appetite for [the] QDII [scheme] – it has slowed down compared to its peak in 2007 and 2008,” he adds. “We are closely monitoring demand to see when greater appetite for overseas assets will return.”
Still, his outlook is positive, given the growth of assets such as those of China’s National Council for the Social Security Fund (NCSSF), for which Northern Trust is a custodian. “The growth rate of [the NCSSF] assets is absolutely phenomenal,” says Wu, “and the expectation is that they will increase their investments in overseas markets, as their chairman has suggested.”
Northern Trust’s Asia-Pacific assets under custody grew by 80% in 2009, and its Chinese AUC grew at more than twice that pace last year, says Wu.
Meanwhile, some Chinese institutions are starting to look at investing in foreign private equity, he says, and Northern Trust is talking to certain firms about providing them with PE admin services.
The branch’s headcount has increased as a result of the licence being awarded, with relationship managers transferring from Singapore to boost the team in Beijing.
Northern Trust had applied for the branch licence back in the fourth quarter of 2007, but the financial crisis made the regulators more cautious about approving bank licences to foreign banks, says Wu.
Northern Trust’s presence in China dates back to 1999 when it began a cooperative relationship with the Bank of Communications. In 2002, Northern Trust began consultation with the NCSSF in preparation for its investment in overseas equities markets.
After receiving approval to open a rep office in 2005, Northern Trust was appointed as global custodian for both the NCSSF and Bank of Communications and has provided global custody portfolio reporting in Chinese to institutional clients since 2005.