Principal readies QFII quota, targets HK build-out

The firm may apply for up to Rmb300 million to provide an A-share strategy in a QIF structure out of Dublin. It also plans to apply for a type-1 licence in Hong Kong, where it is eager to add resources.
Principal readies QFII quota, targets HK build-out

Principal Global Investors is preparing to apply for a QFII quota with the goal of offering an A-share strategy to institutional clients globally via a qualified investor fund (QIF) out of Dublin.

The asset management arm of Principal Financial Group is also planning to apply to the Securities and Futures Commission for a type-1 licence to carry out equities trading in Hong Kong, AsianInvestor can confirm. It already holds type-4 and type-9 licences in the city.

It moves come as the company strives to build out in Hong Kong, with Andrea Muller, Asia chief executive of Principal Global Investors, saying the firm plans to increase headcount in areas including investments, sales and marketing and operations.

Principal has around 50 staff in Asia, of which about 20 are investment professionals. Muller says the firm is looking to add resources in Hong Kong to take advantage of opportunities in offshore renminbi products and emerging market debt especially.

At the start of this year Principal relocated Frederick Laydon from Beijing to Hong Kong to serve as regional chief operating officer. In Beijing he was working for the China JV run by Principal’s parent. Now Laydon and Muller are working on opportunities within QFII as well as offshore renminbi.

Principal applied for its QFII licence in December 2010 and was one of seven firms granted a permit this January. It came after the China Securities Regulatory Commission handed out 14 QFII licences in December last year in a clear sign it has sped up its approvals process.

Although Muller won’t be drawn on how much Principal will seek in its QFII quota application, AsianInvestor understands it could be up to Rmb300 million.

Muller says it aims to use the quota to invest in China A-shares and that these shares would be offered in a QIF domiciled in Dublin for large institutional investors. The QIF would come under its Principal Global Opportunities Series.

“Gaining a QFII licence is a very exciting development for Principal globally and for our strategy in Asia,” says Muller. “There is a lot of interest in A-share capability from clients and prospective clients in Asia and globally, especially in Europe.”

She suggests there are certain advantages to using a QIF structure in terms of subscriptions and redemptions and from a tax standpoint, although she adds that the firm may also look to provide A-share advisory for separate accounts.

Principal Global Investors has around $242 billion in AUM worldwide, of which Asia accounts for around $10 billion. Of that, it manages around $1 billion in China-focused H-shares.

Principal’s parent first entered China in 1994 and established a joint-venture with China Construction Bank in 2005, managing both equity and fixed income products for local clients as a qualified domestic institutional investor (QDII).

Principal Global Investors now acts as an overseas adviser to the JV’s QDII product offering, and has two staff working within it. It also set up a representative office in Beijing last year, appointing Nian Liu as chief rep.

“We have taken steps over the past year to build out a China strategy, and QFII is an additional arm,” says Muller. “What we have been doing is preparing ourselves to be better equipped to do QFII and be better equipped to help the JV with QDII.”

Asked if Principal planned to expand or upgrade its rep office in Beijing or build up its QDII expertise within its JV partner, Muller replies: “We are looking at all possibilities.”

Overall Principal Financial Group provides retirement services, insurance solutions and asset management. It has 18 million customers across Asia-Pacific, Europe, Latin America and the US and $335 billion in assets under management.

¬ Haymarket Media Limited. All rights reserved.