Chinese managers are facing a steep learning curve in terms of international marketing and distribution within Ucits as they strive to meet product demand from US and European investors.
“Pretty much every Chinese asset manager of medium size and scale has started looking at the Ucits vehicle as a distribution choice, including large mainland Chinese banks and fund management companies,” confirms Brent Reuter, head of sales and relationship management for Asia at RBC Dexia Investor Services.
China Asset Management Company, ICBC, Bank of China, Harvest Global Investors, Bosera and CSOP Asset Management are among those that have already launched Chinese Ucits funds, to name just a few.
Hong Kong subsidiary CSOP, for example, launched a Luxembourg-registered Ucits IV fund series – the China Southern Dragon Dynamic series – to meet overseas demand for renminbi and China-themed exposure. This it achieved through sub funds focused on China equity and CNH corporate bonds.
And Reuter points to a recent evolution in Chinese Ucits funds from a broader equity strategy to more sector-centric or themed investment vehicles, such as technology-focused and RMB fixed income products.
But above all, Reuter sees the adoption of an appropriate distribution strategy as the biggest challenge facing Chinese asset managers as they seek to break into overseas markets in scale.
It is a question of learning how to gauge how much fund seeding is required [usually $50 million to $100 million] and how to draw up a financially shrewd business plan to drive fund success.
“There is a need to come up with an appropriate distribution strategy, learn the respective markets, understand the regulatory framework and figure out the appropriate fund structure and technicalities of fund prospectuses,” explains Reuter.
While he acknowledges this is no different to the difficulties faced by US managers when they first entered the international investor arena, he figures that Chinese managers are up to 15 years behind developmentally where American managers were when they first came to Asia.
Reuter notes that for institutional products, asset managers will likely need to set up offices in target markets and hire wholesale teams, while for retail they need to secure distribution accords with large European retail or private banks – neither of which has happened on any scale to date.
The initial goal, he stresses, will be to partner a well-recognised brand such as a retail bank with footprint in continental Europe.
It is fund marketing that Reuter expects to become the biggest area of development for Chinese managers in the years to come, and he believes that they are currently somewhere between an experimenting and commitment phase.
“To date there hasn’t been much alliance between Chinese asset managers and large international banks, although I can foresee that they will start to build their brand profile in the near future,” Reuter says.
“But it took a long time for US managers to build their brand profiles when they first came to Asia. It will require consistent effort and long-term commitment to unlock the enormous potential.”