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China set to approve 10 onshore licences this year

China's regulator is likely allow 10 more foreign managers to sell private fund products in 2018, according to Miao Hui, senior analyst at Cerulli Institute, who leads the China research initiative.
China set to approve 10 onshore licences this year

In 2017, 10 investment management wholly foreign-owned enterprises (IM Wfoes) obtained approval from the Asset Management Association of China (AMAC) to launch private fund products to domestic qualified investors. Earlier this month, Italian asset manager Azimut was also granted the license, making a total of 11 private fund management (PFM) license holders.

Miao expects issuance of PFM licenses this year to remain at the same pace as in 2017.

Neuberger Berman is the latest manager to launch a private fund product targeting domestic qualified investors (high net worth individuals and institutional investors) only. So far, a total of eight private funds managed by foreign managers are being sold to investors in the mainland.

Traditional entry

Apart from Man Group, which has a focus on hedge funds, the PFM license holders have mainly launched traditional and long-only equity or bond funds in China.

Miao said building a reputation for stable and reliable fund management is the crucial step for the foreign managers attempting to establish a foothold in the domestic market.

“The foreign firms would not risk damaging their reputation by launching some innovative yet difficult strategies. It is understandable that they are launching traditional products,” she explained.

It has been almost a year since the launch of Fidelity’s China Bond No.1 Private Fund in May 2017, the first-ever fund product launched by a foreign firm in China. But foreign managers known globally still face the challenge of a lack of recognition by domestic investors.

“Currently, domestic investors do not recognise much differentiation among different foreign managers due to unfamiliar names and a lack of a long track record of their firm and product.”

Strong support from local distributors may help build investor confidence in foreign firms. “The distribution partner has a key role to convey the investment philosophy on behalf of the foreign managers and explain it to the investors,” she said.

“Foreign managers have therefore taken very prudent and thorough research in the selection of their local distribution partner.”

Miao said foreign managers in China are largely avoiding positioning themselves as a competitor with foreign or domestic peers.

“The foreign managers in China are now very united,” she said. “Their operation and performance will have a large impact on the reputation of foreign participants as a whole.

“They understand that if they want to improve penetration into the local market, they will have no choice but working hard on the debut product based on experience sharing and information exchange with the others.”

The entry of foreign managers does not put much pressure on China’s domestic players, she added.

“Domestic managers are more interested in looking at the leading private fund firms with a larger AUM. For now, foreign firms are still minimal in size.”

Part of the Mark Allen Group.