BEA Union Investment is expected to launch another product that adopts Hong Kong’s open-ended fund company (OFC) regime, a variable share capital structure for asset management firms that was introduced in 2018.
The product, the BU Asian Bond Fixed Maturity Fund 2025, received SFC approval this week to be made available to retail investors in Hong Kong, according to the regulator’s records.
This will be BEA Union’s third OFC structured product. The firm first adopted the OFC regime in May last year with the launch of the BU APAC Bond Fund, and followed up with a second product, the BU China High Yield Bond Target Maturity Fund 2023.
An OFC is an investment fund in corporate form domiciled in Hong Kong. It is different from a unit trust, which is the typical Hong Kong-domiciled public investment vehicle, because it has a separate legal person or entity and has a board of directors, according to the SFC.
Traditionally, an open-ended investment fund which proposes to domicile in Hong Kong is usually established in the form of a unit trust rather than a company limited by shares, because companies incorporated in Hong Kong are not allowed to reduce their capital unless specific procedures are followed.
However, the OFC regime allows fund managers, licenced or registered with the SFC for conducting Type 9 (asset management) regulated activity, can form a Hong Kong limited liability company with a variable share capital structure to be subscribed and redeemed by the investors, as well as pay distributions out of net assets or capital.
BEA Union’s new product is the firm’s fourth retail product to be offered in Hong Kong. It launched its first retail FMP in January 2019 – the BEA Union Investment Asian Bond Target Maturity Fund 2022. That fund was also Hong Kong’s first FMP to be made available to retail investors.
The two other FMPs the firm manages are also Asia-focused: the BEA Union Investment Asian Bond Target Maturity Fund 2023 (received SFC-approval in November 2019) and the BEA Union Investment Asian Corporate Target Maturity Fund 2023 (received approval in October 2019).
In a similar move, Invesco last month received approval from the SFC to launch six more versions of its Asian Bond Fixed Maturity Fund 2022.
“The low yield environment continues to be a concern for some investors. The Fed’s policy is expected to remain accommodative for some time, given its average inflation targeting regime and commitment to a zero bound for interest rates,” Freddy Wong, managing director and head of Asia-Pacific fixed income at Invesco told FSA recently.
“This suggests that rates will likely remain low even as growth recovers. At the same time, we see the valuations of Asian credit remain attractive, which offer a higher yield than developed market bonds supported by solid fundamentals,” he added.
In the past two years, several other asset managers, including EFG Asset Management , HSBC Global Asset Management and Hang Seng Bank also rolled out FMP products in the region.
FMPs are marketed to investors who want more certainty in terms of future income streams and interest rate risk, especially when global markets are experiencing huge volatility.
They promise regular income for a specific time period. Compared to direct investment in a few bonds by individual investors, a fixed-maturity bond fund is meant to provide the benefits of diversification with a large pool of bond positions across different markets and industries.
They still carry risk, but unlike a regular bond fund, all principal is typically returned at maturity (if no defaults), plus investors receive income monthly or quarterly.