UBS Global Asset Management is assessing its business stategy in China, having just joined the list of firms to have received a renminbi qualified foreign institutional investor (RQFII) licence.
The Swiss fund house was among four firms to get RQFII approval last month – alongside UK-based Ashmore, Guangzhou Securities and Hong Kong’s Wing Lung AM – and is now applying for quota.
Kai Sotorp, Asia-Pacific head of UBS Global AM, says the firm is in the process of determining how much to seek. He also notes that the State Administration of Foreign Exchange has its own process for the amount and pace of quota approval. As a result, he adds, it’s hard to say where the firm, which has both China A-share and fixed income capabilities, would like to allocate the money.
UBS Global AM also already has a substantial foothold in China. Its mainland joint venture, UBS SDIC Asset Management, received Rmb800 million ($132 million) in RQFII quota in December 2012. And UBS Global AM was the first firmsto receive a QFII licence, in May 2003. The firm also has a direct-investment arm on the mainland, UBS Global Asset Management China.
One thing the new batch of RQFII quota won’t be used for is exchange-traded funds, as UBS is still in the process of establishing an ETF platform. The firm hired Sammy Yip to start building an ETF business in Hong Kong in August – as reported first by AsianInvestor – but remains "some way from launching our local ETF business", says Sotorp. “We’re still laying the groundwork.”
Meanwhile, UBS Global AM does not have a Hong Kong-domiciled fund range and has no current plans to create one with a view to benefiting from the proposed Hong Kong-China mutual recognition scheme. It is “assessing and monitoring” developments in this space, says Sotorp, but will continue to use its Ucits products for the time being.
The firm already has various channels for access Chinese assets and selling to mainland clients, he notes, given its onshore JV, the direct-investment platform and an asset management arm within UBS Securities.
With regard to passport plans for the wider region (namely the Asia Region Funds Passport and Asean initiatives), some suggest international asset managers with well established businesses in the region will lose the advantage they derive from having entrenched distribution networks.
Sotorp agrees passporting that will make it easier for others to compete, “which is healthy for everyone”. However, he expects it to be several years before any working schemes are in place. Each country wants to ensure there is a robust domestic industry and that the local players can survive the implementation of such an initiative.
“I don’t see the emergence of a Ucits-type scenario any time soon in Asia Pacific,” he notes, so firms that have invested in localised country platforms will continue to be able to operate those successfully “for a while”.
UBS Global AM has a presence locally in Hong Kong, Japan, Korea, Singapore, Taiwan and Australia, while its Southeast Asia intermediary and institutional business is run out of the Lion City.
Meanwhile, when asked whether he is concerned about the gloomy outlook on China among many in the industry, including economists and hedge funds, Sotorp is sanguine.
He concedes there may be issues around the shadow banking sector providing financing to the real estate sector, for example, but says the government is well equipped to deal with them.
“We see GDP growth remaining fairly robust in China – at around 7.5% this year," notes Sotorp. "We’ve also seen the expansion of credit, but if you look at the accumulation of corporate and individual assets and compare them to the aggregate debt position in China, it’s still a relatively manageable number.”
He also points to the potentially positive impact of China moving towards a more market-based regime, as hinted at during the Third Plenum in November.