Robeco eyes QDLP licence, plans A-share fund

Amid the press of asset managers moving to build onshore China businesses, Robeco plans to obtain a qualified domestic limited partnership (QDLP) licence, add a third executive to its mainland stock research team and launch an A-share fund.

This comes as the Dutch firm's Luxembourg office received Rmb3 billion ($443 million) in quota under the renminbi qualified foreign institutional investor (RQFII) scheme last month. It was Robeco’s first batch of RQFII quota, which allows it to raise renminbi to invest in mainland assets.

The firm already had $126 million in QFII quota, and also uses the Shanghai-Hong Kong Stock Connect to trade A-shares. It did not provide more detail about the planned product launch.

Research focus

Robeco set up a wholly foreign-owned entity (WFOE) in Shanghai in November last year, but is taking a different approach from most of its peers. Whereas advisory or consulting WFOEs are usually set up for sales and client servicing, Robeco is focusing on building an A-share research team, as well as targeting institutional clients.

Unlike many of its rivals, the firm does not have an onshore investment management joint venture, hence the need for local capabilities.

The research desk is headed by Lu Jie, who joined in November last year from the Shanghai office of Norwegian sovereign wealth fund Norges Bank Investment Management, and research analyst Tang Lin, who arrived in April from Goldman Sachs. Robeco is adding a third member to the team, but declined to provide more details.

Robeco’s China buildout is part of its broad Asian expansion, which included the July opening of a Singapore office with a focus on credit.

The firm will be looking to boost the amount of money it runs for clients in Asia Pacific, as it sources just $6.2 billion (2%) of its total $154 billion in AUM from the region.

Other foreign fund houses, such as Fidelity and JP Morgan Asset Management, have been strengthening their China equity and fixed income capabilities.

Robeco declined to comment on whether it had applied for a QDLP licence, which would allow it raise renminbi to invest in overseas products. That said, the scheme has been temporarily suspended since March.

Moreover, the firm's WFOE cannot manage products locally, so it will need to set up an investment management WFOE (IM-WFOE) and register as a private fund firm, if it is to pitch for domestically focused mandates. China’s securities regulator approved this access route in June.

WFOE uncertainty 

The WFOE set-up, providing 100% ownership, has gained popularity among foreign managers, as joint-venture fund houses have fallen out of favour in recent years.

However, most WFOEs are simply upgraded representative offices at present, said January Sun, a senior associate at Shanghai-based consultancy Z-Ben Advisors. “They are not active in business activities, mainly because of policy uncertainties and they are mulling their next step.”

Foreigners looking to manage private funds onshore will need to implement independent onshore trading systems in their IM-WFOEs, Michael Lu, managing director of Robeco’s WFOE, told local media in Shanghai today. That will raise operating costs and require them to change their internal management structures, he added.

Foreign firms will need longer to consider such a move; no WFOE has registered as a private fund manager yet, Lu added. Aberdeen, Bridgewater Associates, Fidelity and JP Morgan Asset Management are the four global firms to have set up IM-WFOEs, making them eligible for registration to run private funds.

Another unanswered question, as UBS Asset Management has pointed out, is whether one WFOE can conduct both onshore investment management and cross-border activities. If not, foreign firms will need to set up two separate entities to do so.

Some firms will be happy with only offering overseas product. For instance, US-based MFS does not intend to manage onshore funds, so its planned WFOE is likely to be a consulting unit.

Hence foreign managers need to plan their China strategies carefully, as they will affect the type of WFOE they need.

Korea’s Hanwha Asset Management is planning to obtain a licence allowing it to do onshore fund management, while rival Mirae Asset Global Investment is upgrading its WFOE to a securities investment firm in China.