Hong Kong asset manager Value Partners yesterday won a qualified domestic limited partner licence and received $100 million in QDLP quota. This represents the third prong in its strategy for developing its China business and has led to the sale of its mainland joint venture.
The firm is offloading its 49% stake in Goldstate Capital Fund Management, to Shanghai Quanyi Financial Information, a subsidiary of Yuanan Jiutian Investment Enterprises for Rmb45 million ($7 million).
Value Partners firm joins BlackRock, China International Fund Management and GF-Persistent Asset Management in the third batch of QDLP licensees. There are now 15 licence holders, which can raise money in China and invest it overseas.
The other two elements to Value Partners' mainland strategy are already in place. It operates a wholly foreign-owned enterprise (WFOE) – a requirement to operate under QDLP – and is moving to sell products under the cross-border mutual recognition of funds (MRF) scheme. It plans to launch its first QDLP product, which will invest into its existing funds in Hong Kong, before the end of this year.
Having become the first Hong Kong fund house to win a QDLP licence, Value Partners aims to expand its retail and high-net-worth individual (HNWI) client base, having traditionally targeted institutions, chief executive Timothy Tse told AsianInvestor.
Mainland distributors say institutional and HNWI demand for overseas assets is rising, mainly due to central bank rate cuts, renminbi devaluation, equity market volatility and the limited quota available via the qualified domestic institutional investor (QDII) scheme, noted Tse.
“Owning QD quota will be more convenient if we are going to seek more collaboration with domestic companies,” he added.
The QD concept refers to the schemes and quotas that allow investors to invest overseas. China has three such programmes: QDII, open to domestic institutions; Shanghai’s QDLP; and Shenzhen’s qualified domestic investment enterprise (QDIE) scheme. China is also planning to launch QDII2, a version of QDII that will allow domestic HNWIs to invest overseas, in six cities.
AsianInvestor understands the Shanghai Financial Service Office agreed to include Value Partners in the QDLP programme in July, but the official licence was handed out yesterday.
The firm has been exploring how its WFOE, Shanghai Value Partners Investment Management Consulting, will operate. The unit was set up in 2011 and houses a 12-strong research and investment advisory team.
Value Partners has applied for its WFOE to become a foreign special member of the Asset Management Association of China (Amac) so that it can operate like a mainland private fund company. That would mean the WOFE could invest in onshore bonds and equities, launch products and raise money from local HNWIs.
Value Partners applied to register with Amac before the June announcement by Chinese authorities that they would allow WFOE to engage in private fund business. It is understood that this is permitted, but no official rules or documents have been released about how WFOEs will operate.
UK-based Aberdeen Asset Management's newly established WFOE is the only one so far to be allowed to register with Amac in order to operate as a private fund company. Fidelity Worldwide Investments is planning to do the same through a WFOE.
Value Partners also plans to offer its flagship funds under the MRF scheme, in a bid to target mass-retail investors and expand beyond HNW and institutional clients.
The firm has appointed CICC Fund, part of investment bank China International Capital Corp, as the agent for selling its flagship Classic Fund to retail investors. Its application has made it one of the 17 Hong Kong funds approved by the China Securities Regulatory Commission on October 9, and it is now awaiting the green light for sales.
The firm chose the $1.8 billion Classic Fund, which invests in Greater China companies, because fund size is a key factor. Under the MRF rules, Hong Kong funds are not allowed to source more than 50% of their AUM from Chinese investors. “We need to consider how much and how long we can sell, so we need a fund with larger AUM," said Tse.
Value Partners is redomiciling its High Dividend Stock Fund as a Hong Kong fund to satisfy MRF criteria. The product, which invests in Asia-Pacific stocks with a China focus, is currently a Cayman Islands unit trust and the firm’s largest fund with $3.7 billion in AUM.
Tse points to the importance of strongly marketing the firm’s first MRF product, particularly as it has largely dealt with mainland institutions in the past. Value Partners is in talks with local and foreign banks in China, as well as online and third-party sales platforms.
Its assets managed for mainland clients has been rising. They accounted for 5% of Value Partners’ AUM as of June 30, up from 3% at the end of 2014.