Fullerton Fund Management and Nikko Asset Management Asia have become the first Singapore-based fund firms to receive renminbi qualified institutional investor (RQFII) licences from China.
Fullerton, a subsidiary of Singapore state investor Temasek Holdings, yesterday said it had received approval. The firm plans to launch two RQFII mutual funds – actively managed equity and bond products.
Manraj Sekhon, CEO of Fullerton, tells AsianInvestor he expects to launch them in the third quarter. "We have not yet finalised the quota, but it will be significant."
Actively managed equity and bond funds are usually granted quota of Rmb800 million ($128 million) to Rmb1 billion.
Fullerton's RQFII funds will target institutional investors, private banks and other investors from Europe and North America that have already expressed interest. “RQFII is not a product for the mass market yet,” says Sekhon.
In October 2012, Fullerton obtained a QFII licence and $250 million quota. However, the RQFII licence provides greater flexibility in product development, "allowing us to provide solutions that better meet the demands of our clients and the market", says Sekhon.
RQFII mutual funds offer daily liquidity and allow managers to switch their investments between bonds and equities.
Meanwhile, Nikko AM Asia – part of Japan's Nikko AM – received its RQFII licence on Friday and will apply for a $200 million quota for a RQFII bond fund.
“The Chinese bond market amounts to about $4 trillion, and is the largest Asia ex-Japan market," says Phillip Yeo, head of product development and management. "For five-year government bonds, the yield is about 4%. We do see interest from Singaporean investors."
Nikko AM has partnered with Shenzhen-based Rong Tong Fund Management, which advises it on onshore investments. It aims to turn its focus on the RQFII bond fund in six to 12 months, which will be distributed via regional banks.
In three to five years, the firm plans to expand its RQFII product range to between $800 million and $1 billion.
Singapore is one of the world’s biggest offshore renminbi centres. Offshore RMB deposits there reached Rmb200 billion as of the end of 2013, according to the Monetary Authority of Singapore.
As part of its drive to internationalise the renminbi, the China Securities Regulatory Commission extended its RQFII programme to London and Singapore last October with quotas of Rmb80 billion and Rmb50 billion, respectively. The first UK fund manger to obtain a quota was Ashmore, which received Rmb3 billion this March.
Though China’s economy has given some cause for concern, Fullerton is upbeat. “China’s long-term investment potential is undeniable," says Sekhon. "The government’s emphasis on reform and rebalancing the economy will position China for more sustainable growth."
The fund manager expects demand for RMB-denominated assets to increase as China opens up its capital account. “Alongside our clients, we take a long term view on China,” he adds.
HSBC has become the first bank to provide custodian serves for RQFII, and is working with Fullerton.