China’s wild market volatility that began in late 2015 has underscored the need for investors to diversify and receive steadier returns, Lau said.
“Chinese investors have more interest in overseas allocation,” she told FSA. “Chinese clients have turned more cautious and prudent on equities, even for overseas stocks, after the A-shares selloff last August. They are looking for investments more safe and stable that will diversify their portfolio.”
Therefore, the timing is right for absolute return funds, which are not tied to a benchmark and aim to deliver in up or down markets. “What matters most to investors is to have a good, steady absolute return regardless of how the markets perform.”
The firm plans two absolute return funds that invest globally. They target professional investors mainly from the mainland who have assets in Hong Kong.
She declined to provide more details about the funds.
In line with the global mandate of the planned funds, GFI has recently expanded the investment team in Hong Kong to five people focused on markets outside China and on both equity and fixed income.
Hopes for foreign inflows
The firm also hopes to attract overseas investors who want access to China equities but have heightened concerns over a variety of fiscal and economic issues.
Foreign investors account for roughly 2% of China’s stock market capitalisation, she said.
As China opens its markets wider to the world, she believes foreign investors would have a preference for domestic asset managers who have the local knowledge and capability to actively manage an A-share portfolio.
Lau added that she thinks the timing is right as the MSCI will decide in June whether to include A-shares in the flagship Emerging Markets Index.
If the MSCI’s decision is positive, the firm hopes that its GFI MSCI China A International ETF will benefit from capital inflows.
However, she admits it will take time before international investors develop a better understanding of China’s markets.
“The more [geographically] distant investors are, the less understanding they have of the China market.”
Earlier this year, the Hong Kong unit’s chief investment officer, Tom Ding, became the CEO. In addition, he manages the GF Global Selective Equities Fund under the QDII scheme, as well as a recently-launched onshore mutual fund which invests in stocks listed in Shanghai, Shenzhen and Hong Kong.
GFI has had two southbound funds approved for sale through the Mutual Recognition of Funds scheme, but only launched one, the GF Industry Leaders Mixed Assets Fund.
Lau said that distributors have not warmed to onshore funds. “We are not rushing to launch the second [MRF fund].”
Guangzhou-based parent GF Fund Management is ranked the seventh biggest mainland mutual fund manager in size, with RMB 330bn of assets under management, according to data provider Wind.
Lau said the firm intends to grow organically and look for opportunities to work with overseas fund houses. The business focus is on Asia and also Europe after the firm set up a Chinese-owned subsidiary in London last October.