Shanghai makes new QDLP approvals

Five foreign fund managers have been given $100 million quotas under Shanghai's alternatives investment scheme. The new QDLP batch is more diverse and includes real estate managers and funds of hedge funds.
Shanghai makes new QDLP approvals

A new batch of foreign fund managers have been given quotas under Shanghai’s qualified domestic limited partner (QDLP) scheme.

The five managers were approved for the alternatives investment scheme by the Shanghai Financial Services Office (FSO), and have been given double the quota which was handed to the first batch of QDLP firms two years ago.

The new awards have been applauded for diversifying outside of hedge funds, by including real estate managers and funds of hedge funds.

The five firms, which were approved on February 10, are: UBS Global Asset Management, Deutsche Asset & Wealth Management, Nomura Asset Management, EJF Capital and CBRE Global Investors, according to a source familiar with the scheme.

Each qualified manager received a quota of $100 million, compared to $50 million for each manager in the first QDLP batch two years ago.

Shanghai FSO confirmed that five new foreign investors had received QDLP status but declined to comment on their names because they had not yet registered their wholly foreign owned enterprise (WFOE) in China yet.

UBS GAM, Deutsche AWM and Nomura AM all declined to comment, EJF Capital and CBRE GI did not respond to requests for comment. 

Industry sources and Shanghai SFO said the programme was still expanding, and some foreign managers were waiting for QDLP approval, and may receive it this year.

“It is definitely a positive sign that the second-round applicants are more diverse in nature,” said Howhow Zhang, research director at Shanghai-based Z-Ben Advisors.

As well as the diversification and extra quota amount, managers have been given more flexibility in being allowed to launch more than one product. Also, $100 million is not the fundraising ceiling, with managers allowed to raise funds in excess of that for a QDLP product.

Value Partners, a Hong Kong-based manager, said it plans to apply for QDLP status to boost cross-border flows, but the firm has not yet decided when or where to apply for it - Shanghai or Qingdao.

The firm has a division focusing on private equity, and 90% of its AUM is absolute return long-biased funds and long-short hedge funds.

QDLP is a pilot cross-border scheme allowing foreign alternatives managers to renminbi-denominated assets to invest in their overseas funds. The scheme was first approved by the State Administration of Foreign Exchange (Safe) in March 2012, and Shanghai FSO handed out qualifications and quotas to six foreign managers in September 2013. They are required to establish a WFOE and partner with a local institution for distribution, in order to tap money from high-net-worth individuals.

Despite the slow progress in the scheme’s roll-out, only four managers in the first batch - Canyon Partners, Citadel Group, Man Group, Och-Ziff - have launched products in the past 16 months. Market observers said that challenges included lack of investor education, small quota limitations and difficulties in finding local distribution partnerships.

But market observers say this does not mean that QDLP has been a failure.

“Upfront costs may be large,” said Z-Ben analyst Sam Chen, “but the second and third product launch could speed up, as [foreign managers] have already established a WFOE, distribution partnerships and a client base.”

Shanghai is no longer the only city to have launched a cross-border scheme in overseas alternative assets. In January this year, Shenzhen launched the qualified domestic investment enterprise (QDIE) programme and handed approvals to four domestic managers, but the scheme intends to eventually open up to foreign managers. Meanwhile Qingdao, a city in Shandong province, launched a QDLP programme in February.

The Shenzhen QDIE and Qingdao QDLP programme could be competitors to Shanghai, given the rivalry between the local governments running the schemes. Tianjin, a city near Beijing, is expected to be the next city to roll out a similar scheme, as reported.

A feature on QDIE and QDLP can be read in the current (March) issue of AsianInvestor magazine

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