Principal GI gears up for RQFII business

The US fund house has applied for a renminbi qualified foreign institutional investor licence and is talking up its parent's China joint venture, despite difficulties encountered by other mainland JVs.
Principal GI gears up for RQFII business

US-based Principal Global Investors has applied for a renminbi qualified foreign institutional investor (RQFII) licence in Hong Kong and expects to receive it by the end of the year.

The development follows recent moves to expand the fund house’s distribution platform and investment capabilities in Asia. PGI also has its sights set on mutual recognition, said Andrea Muller, Asia chief executive.

In January this year the firm was in talks with foreign banks – including Bank of East Asia, Citi, HSBC and Standard Chartered – about distributing its Ucits funds in China. But it has no major progress to report, said Muller, though discussions are ongoing.

PGI does have an existing channel for selling its 10 Hong Kong-domiciled funds to mainland investors: parent Principal International’s joint venture with China Construction Bank, CCB Principal Asset Management. PGI already has a QFII licence.

PGI has recently been building out its investment teams, such as the one that covers global emerging market equities, in preparation for RQII business. It has also been adding headcount to its real-estate investment trust and multi-asset teams. The moves followed a slew of departures in 2012.

This year, three additions have been made to PGI’s real-estate investment trust team bringing the total to five in the real estate team in Singapore.

PGI expects to add another distribution executive next year, though Muller declined to give more details.

Principal International may be positive about its business model in China, but other firms have struggled with the JV route to accessing the country.

Last week, US financial services firm BNY Mellon received regulatory approval to sell its China joint venture to Shanghai-based wealth management firm Leadbank. And in June, State Street Global Advisors (SSgA) was reported to be seeking to offload its 49% stake in SSgA Fund, just a year after it was set up.

Competition had grown fiercer following changes in June last year to rules to allow securities firms, private funds and insurance companies to enter the mutual fund industry.

However, Muller said her firm’s relationship with its JV was very strong. She pointed to the growth of money-market funds in the country, through traditional and online channels, as a first step to Chinese investors looking at mutual funds “in a serious way”.

The combined AUM of the JV’s three money-market funds’ rose to Rmb50.57 billion as of October 27 from Rmb29.45 billion on September 30 and Rmb29.55 billion at the start of the year, but the firm did not provide figures over a longer period.

While this tends to be a short-term business, noted Muller, these flows do at least mean that retail investors in China are taking money out of fixed deposits and putting it into the mutual fund market.

Meanwhile, PGI is adopting a wait-and-see approach to the region’s other two fund-passporting schemes – the Asean and Asia Region Funds Passport proposals – but Muller is more positive on the former plan.

“We are not involved in the retail distribution business in Asia. PGI would not be a direct beneficiary – but some of our JVs and their partners would be,” she said.

For example, Principal International has a JV with Malaysian bank CIMB: CIMB-Principal Asset Management is headquartered in Malaysia and has operations in Indonesia, Singapore and Thailand.

PGI managed assets of $328 billion as of the end of June.

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