UBS Asset Management has continued the buildout of its China business, with its two Chinese wholly foreign-owned entities (WFOEs) targeting onshore advisory business and its mainland joint venture UBS SDIC securing a Shenzhen QDIE licence. But the Swiss firm does not currently plan to participate in the Hong Kong-China mutual recognition of funds (MRF) scheme.
Having prioritised China as its main growth driver globally, UBS AM now has multiple access points to mainland clients via its Beijing and Shanghai WFOEs and the local JV with SDIC Trust. However, it does not have any Hong Kong-domiciled funds and has not applied to have any redomiciled, so is not eligible to participate in the MRF scheme, which launched in July.
UBS SDIC’s segregated-account (SA) subsidiary, UBS SDIC Capital Management, received a quota of $30 million in November as part of the second batch of licensees under Shenzhen’s cross-border qualified domestic investment enterprise (QDIE) scheme. The SA unit, which has Rmb95.8 billion ($14.7 billion) under management, is seeking approval to launch QDIE products, which would invest in UBS AM’s overseas alternatives funds.
UBS AM already has $100 million in quota under Shanghai’s similar cross-border alternatives scheme – the qualified domestic limited partnership (QDLP) programme.
Both QDLP and QDIE allow domestic investors to invest in UBS AM’s alternatives products, such as funds of hedge funds and private equity funds. QDLP products will be run under UBS AM’s name, while QDIE products will launched by UBS SDIC Capital.
Meanwhile, UBS AM will use its two WFOEs to conduct advisory business, said Ling Xinyuan, China chairman of UBS AM. Indeed, the Beijing entity has already started doing so. The plan is to register both WFOEs as so-called ‘sunshine’ private securities managers, China’s equivalent of hedge funds, once the securities regulator confirms details of WFOEs’ business scope, Ling told AsianInvestor.
UBS’s Beijing WFOE was the first mainland WFOE to be registered as a private manager with the Asset Management Association of China, but this only allows it to invest in alternatives such as real estate and infrastructure.
The Chinese authorities plan to relax the rules to allow WFOEs to operate as private securities managers that can participate in domestic capital markets and manufacture private products. Such products must be distributed in partnership with a mainland firm, such as a trust company, under that firm’s name.
Ling said he believed China would open its capital markets quickly in the coming few years, especially after the International Monetary Fund’s move to earmark the renminbi as a global reserve currency.
China is UBS AM’s third biggest market by client assets under management (AUM) after Switzerland and the US, in that order. The country is also the biggest contributor to UBS AM’s Sfr139 billion ($139 billion) in AUM sourced from Asia Pacific (as of end-2014); that was not the case five years ago. The firm declined to break down its AUM further.