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Challenges of setting up PFM WFOE in China

Coordinating with the head office, keeping up with local regulations, branding and distribution are top challenges when establishing an investment management wholly foreign owned enterprise (WFOE) with a private fund management (PFM) licence in China, according to industry sources.
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For a foreign asset management firm, establishing an IM WFOE requires a good business proposal and commitment from senior management, according to Aries Tung, managing director and head of strategy and business development for China at UBS Asset Management.

However, if senior management is not familiar with China, “extensive communications is needed in-house in order to get the business proposal, the budget and the people right,” he said during a panel discussion at the Asia Securities Industry and Financial Markets Association (Asifma) conference held in Hong Kong in late November.

Aries Tung, UBS Asset Management

He noted that before applying for a PFM licence, the IM WFOE should have in place the right business model, infrastructure, staff and office space.

But hiring local staff is not that easy, observed Jackson Lee, country head for China at Fidelity International. “It is not easy to find people who can fit into your global culture and understand the compliance and legal environment.”

Jackson Lee, Fidelity International

Regulations

Keeping up with regulations in China is also a challenge when establishing an IM WFOE, according to Ling Sow Kheng, senior vice president for China corporate strategy at Fullerton Investment Management (Shanghai).

“Regulations in China change quite a lot, and there is so many of them,” Ling said during the discussion. “There are always new rules issued and you just keep on analysing and reporting back to the head office to see what it means to for the firm or your strategy.”

Ling Sow Kheng, Fullerton Investment

The regulations that foreign asset managers are used to may be very different from those in China, she added. For example, China has its own know-your-customer (KYC) rules and is further developing them. However, the standards may not be the same as in the developed markets, which may confuse foreign players.

Fidelity’s Lee reminded industry players that China is still an emerging market. “It’s like in Indonesia, the challenges are similar.”

Part of Mark Allen.