Building blocks
A foreign asset management firm that has done business with China previously may have an easier time setting up an IM WFOE with a PFM licence, according to Fidelity’s Lee.
Some firms that have established an IM WFOE had earlier done business in the country by establishing joint ventures, obtaining quotas for the qualified domestic limited partnership (QDLP) scheme or investing in China through the qualified foreign institutional investor (QFII) and renminbi qualified foreign institutional investor (RQFII) schemes.
“All these are important building blocks that are going into your WFOE,” Lee said.
So far, three out of the eight managers that have PFM licences have launched onshore funds in China: Man Investments, Fidelity and UBS Asset Management. Fullerton is expected to launch its first fund at the end of the year or in early January.
Branding and distribution challenges
In China it is particularly important to obtain a patent for the firm’s name, noted UBS’s Tung. “You don’t want to come into a city and then suddenly so many companies have the same name as yours,” he said, adding that some firms may not be allowed to register because a company would already have that same name.
“We have to build our brand identity because I think most Chinese do not know who Fullerton is, but maybe they know Fidelity and UBS,” Fullerton’s Ling said. It was a challenge to find the right distribution partner that is willing to work with the firm, she added.
Marketing is not simple either. Mark Li, Fullerton’s Shanghai-based general manager and head of sales for China, told FSA recently that PFM WFOEs can’t just put out any marketing programme because the products are targeted to professional investors. “You have to establish a common strategic mission [with your distributor] and agree on specific details, such as how to launch a product.”
Not all firms experience these challenges. “We are quite lucky actually that we have our own distribution channel,” said UBS AM’s Tung, explaining that the firm makes use of UBS Wealth Management, which is affiliated with UBS Securities in China. This arrangement helps UBS AM with product development and getting feedback from clients.
He added that fund managers should also decide whether or not they should replicate their offshore product range in China before launching a fund.
“The local market tends to be more absolute-return oriented and has a very high turnover,” he said, adding that most investors would stay in a fund for just three-to-six months.
