UBS AM plans MRF products, cautions on alternatives

The Swiss firm will set up funds in Hong Kong for the mutual recognition scheme as part of its China buildout. Meanwhile, its Asia head flags potential capacity issues for some alternative assets.
UBS AM plans MRF products, cautions on alternatives

UBS Asset Management is to set up a range of products in Hong Kong as part of its plan to participate in the mutual recognition of funds (MRF) scheme between Hong Kong and China, as it builds on its already significant mainland presence.

Ulrich Körner, the firm's Zurich based president, confirmed it was in the process of putting in place funds for MRF. UBS AM has no Hong Kong-authorised products, so this is the first stage in the process, he told AsianInvestor during a recent trip to Hong Kong, 

Applications will be submitted to Hong Kong’s Securities and Futures Commission in late April or early May, and approval is expected to take between four and six months. The firm would not say how many funds it was planning to submit nor any other details.

The firm’s China chairman, Ling Xinyuan, had initially told AsianInvestor late last year that it had no plans in respect of the MRF scheme. 

Körner said UBS AM saw great opportunities in China across all its businesses and intends to significantly increase top-line revenue in the country by 2020. “The bank’s senior executives agreed this is somewhere we should be,” he said, adding that investment banking and wealth management were both core to this strategy.

This comes after Kathryn Shih, the group’s recently appointed president for Asia Pacific, outlined in January how UBS would put a particular emphasis on asset management in China. UBS AM was this week ranked in the top three among foreign asset managers in respect of their mainland business in a new Z-Ben Advisors report, behind JP Morgan AM and BNP Paribas Investment Partners.

At the UBS Greater China Conference in January, chief executive Sergio Ermotti said the group planned to double its mainland headcount in the next five years. Körner said the strategy includes expansion of business service centres in key ciities and the launch of the UBS Business University with new campuses in Beijing and Shanghai. Overall the headcount will increase from 680 to 1,400 by 2020.

While Körner acknowledged that recruiting staff in China was never easy, he said UBS did not envisage too many problems recruiting another 700 staff. The talent pool has increased and many more people are being trained up, he said. And typically firms with joint ventures in China will rotate staff, giving mainland employees experience in Hong Kong and further afield.

UBS has a number of business ventures in China, including its two wholly foreign-owned entities targeting onshore advisory business, and its mainland joint venture UBS SDIC. The latter entity has a Shenzhen qualified domestic investment enterprise (QDIE) licence, which enables it to raise money from local high-net-worth clients.

UBS SDIC is also investigating the potential of online distribution and is investing heavily in financial technology research and development, said Körner, though he would not divulge how much is being committed to this. 

“We see asset managers paying a lot of attention to investing in technology and data management,” said Rene Buehlman, Asia Pacific head of asset management. “Nobody knows how it will evolve. The best you can do is try to be on top of developments.”

Indeed, asset management executives agreed at FundForum Asia in Hong Kong this week on the importance of digital distribution in China.  

Meanwhile, the newly liberalised China interbank bond market has UBS AM particularly excited. “That is why we are so keen to manage assets onshore,” said Buehlmann. Institutional investors can now trade cash bonds and fixed income derivatives and engage in bond repo and lending.

UBS AM also sees major opportunities in the alternatives space, where it has $120 billion of AUM, including $65 billion in property and $35 billion in funds of hedge funds. It also manages $6 billion in single-strategy hedge funds and $15 billion in private equity and infrastructure projects.

Allocations by pension and sovereign wealth funds will spur sharp growth in the alternative funds space in the next five years, attracted by such assets’ unconstrained nature and potentially better risk-adjusted returns, said Buehlmann. 

However, he sounded a a note of caution: “The challenge is to be careful where you allocate; there’s now a lot of money chasing a limited capacity. With yield compression in infrastructure and private equity, it is potentially a race to the bottom.” 

Globally, UBS AM has $650 billion in AUM, 23% of which is sourced from Asia Pacific. Its client profile globally is 70% institutional, 10-15% third party wholesale, with the remainder in its wealth management business.

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