Northern Trust says that increasing interest from existing clients in launching exchange-traded funds domiciled in Hong Kong prompted it to launch fund administration services supporting Hong Kong products.
The asset-management and asset-servicing firm points to the demand that has grown in recent years alongside the emergence of opportunities for cross-border investment between mainland China and Hong Kong.
This has been sparked by mechanisms such as the renminbi qualified foreign institutional investor (RQFII) scheme – allowing direct investment into RMB by Hong Kong subsidiaries of Chinese fund houses – and the proposed RMB fund mutual recognition initiative announced earlier this year by Hong Kong’s Securities and Futures Commission.
In supporting Hong Kong funds, Northern Trust will provide fund administration services including fund accounting, shareholder services and global sub-custody capabilities.
Camie West, Asia head of global fund services at Northern Trust based in Hong Kong, says her team is seeing increasing interest from asset management clients in launching Hong Kong-domiciled ETFs to be listed in Hong Kong and potentially also cross-listed in China. Firms such as Amundi, BlackRock and Franklin Templeton have already made moves on this front.
“One of the drivers for such growing interest is the fact that the proposed RMB fund mutual recognition platform is expected to make these Hong Kong-domiciled funds accessible to mainland investors onshore,” says West.
However, details of the proposed platform are still pending, as it remains unclear what types of funds will be “recognised Hong Kong funds”, according to authorities in Hong Kong and China.
Other service providers already offering fund admin services for Hong Kong funds say the SFC’s announcement, though lacking in detail, has already triggered much discussion among clients.
Mark England, co-head of client sales management for investor services at Citi Securities and Fund Services in Hong Kong, says asset managers are still trying to ascertain what the requirements would be for distributing RMB-denominated funds into China through the proposed mutual recognition platform.
But already, more managers are thinking about the prospects of using Hong Kong as the focus of their North Asia distribution strategy and considering domiciling their products as Hong Kong funds.
England points to an “unprecedented level of interest” in establishing new Hong Kong unit trusts this year in preparation for the implementation and launch of the scheme. “While the Hong Kong market in itself might make it difficult to justify managers domiciling their funds here, the proposed mutual recognition platform has the potential to be a game-changer and provides a valid argument for doing so.”
Moreover, last month’s further expansion of the RQFII scheme to Hong Kong-domiciled financial institutions – dubbed RQFII 3 – has provided another incentive for fund houses to register funds in the city.