Blackrock’s China A-share Opportunity Private Fund II earlier this month has received approval from the AMAC to be sold to China’s qualified investors, which include high net worth individuals and institutional investors.
This is the third onshore product that the firm will be able to launch under its private fund management (PFM) business, with the first PFM product launched in July last year, AMAC records show. A PFM licence allows foreign managers to offer onshore funds to domestic qualified investors.
The firm’s China A-share Opportunity Private Fund has a Luxembourg Ucits version, the China A Share Opportunities Fund, according to FE data. Incepted in 2017, the product is managed by Jeff Shen, the firm’s co-CIO of active equity and co-head of systematic active equity. The Lux fund invests in China’s A-shares through a quantitative stock selection strategy. By analysing social media data, the manager can look at the changes in investor sentiment and identify market trends.
FSA sought more information from Blackrock, but the firm declined to provide additional details, including whether the onshore product replicates the Luxembourg Ucits strategy.
In total, there are around 21 foreign firms with a PFM licence, which have launched 46 products with RMB 5.4bn ($756m) in assets, according to a statement from the AMAC.
Ramping up the business
Blackrock has been ramping up its onshore business. Besides its onshore products, its PFM received an investment advisory licence from the AMAC in June. The licence allows PFMs to provide investment advisory services to private asset management products issued by onshore securities and futures firms and their subsidiaries, as well as fund management companies and their subsidiaries in China. Only a few foreign PFMs have received this licence, including Neuberger Berman, Fullerton Fund Management and Aberdeen Standard Investments.
Blackrock is also one of the few firms that adopt a “dual-track” onshore strategy, in which it has both a PFM and a qualified domestic limited partnership (QDLP) licence. Under its QDLP business, the firm has launched two products, according to AMAC records.
A QDLP licence allows foreign managers to raise money domestically to invest in offshore traditional and alternative investments, including overseas equity and bond funds, hedge funds and real estate, within allocated quotas.
Other firms that have adopted a dual-track strategy are Mirae Asset, UBS Asset Management, Aberdeen Standard Investments, AMG, Man Investments, Neuberger Berman and Value Partners.
PFM relaxation
Chinese regulators are slowly relaxing onshore fund rules in a move to open up its fund market to foreign players.
In June, for example, the regulator announced plans to widen the investment scope of foreign PFMs to include securities in the Hong Kong-China Stock Connect schemes, according to a Cerulli report.
Also this year, regulators said that it will allow foreign PFMs to convert their business into a public fund management company (FMC), which would permit them to distribute to the RMB 13.9trn retail investor base, without closing their PFMs first.
The market consensus is that a foreign PFM may be allowed to apply for conversion to FMC in 2021, but no guidelines or detailed timelines have been provided, Hui Miao, Singapore-based senior analyst at Cerulli Associates, said previously.
“In general, it is a good signal. It dismisses foreign managers’ concerns over the continuity of their private fund business and dismisses uncertainty about the continued market liberalisation amid US-China trade tension,” Hui said.
