CACEIS, which is majority owned by Group Credit Agricole, assists various types of asset managers who are either moving into Asia or regional players expanding internationally.
“There’s been dramatic growth in China’s onshore asset management and many have the ambition to become China’s Amundi or BlackRock,” Li said. “They are thinking along these lines.”
In Hong Kong, for example, there are 50-60 mainland asset management subsidiaries, he estimates. His firm has spoken to about half and the majority of them understand the urgency of expanding overseas.
Three asset managers who haven’t launched products before are in Europe doing road shows and seminars, Li added.
“A few years ago, nobody had plans to do that.”
Regulatory speed
A key driver has been regulatory changes, which have unfolded quicker than initial expectations, Li said.
“Chinese fund houses were thinking that RQFII was a government policy to give them an advantage in the market. Now RQFII seems to belong to everyone and a lot of countries have quotas.
“Regulations are changing [the landscape] faster than expected and that caught [China-based asset managers] by surprise. They now have to respond quicker than what the original business plan called for.”
The imminent launch of the Hong Kong-Shanghai stock connect is another catalyst for going offshore because it is likely to negatively impact Chinese asset managers who use RQFII quotas.
“Some managers have a large portion of high net worth clientele who were using the RQFII products of domestic fund houses to gain access to the China market. The stock market linkage creates an opportunity for the clients to go into China directly.”
Government push
In addition, the Chinese government aims to further internationalise the RMB currency. One way to do that is by offering more financial products offshore, which supports the expansion of homegrown asset managers.
Li said two years ago, China permitted the sale of mainland ETF products and domestic asset managers saw an opportunity to attract Western investors.
That opened the door for mainland fund houses such as CSOP, Harvest, ChinaAMC and EFund to successfully launch offshore instruments.
CSOP was the first China-based provider to list an RQFII ETF on the London Stock Exchange while Harvest, another domestic firm, listed the first overseas RQFII ETF on the NYSE.
Until the government permitted ETFs, Chinese asset managers wanting to expand overseas faced challenges. They found it tough to promote actively-managed funds to Western investors due to un-established brands and an often negative image of China.
“They were not accepted by the more conservative investor,” Li said.
But the ETF was a passive product, and they saw opportunity.
The four firms also set up Western partnerships. Harvest, for example, works with Deutsche Bank and is running on the bank’s platform.
“Chinese asset managers learned a lot in the past year. They’re not just talking about performance, they learned to get to know people and establish a distribution network. Even with a good track record that is not easy.”
The success of the the four asset managers offered one model for others to follow, Li said. Mainland fund houses are thinking about whether to follow a partnership path or just go direct into a brand building exercise.
“Chinese asset managers know they don’t compete among themselves. They see themselves as a group trying to build a track record together. If a few are successful, that will benefit all.”
Testing Hong Kong domicile
Li also sees a pick up in activity from European clients expanding in the region. “They are looking for more revenues and see Asia as a growing territory, especially in regards to GDP.
He also cited activity among Western fund houses to address the planned mutual recognition platform between China and Hong Kong. Under the scheme, qualified funds with a Hong Kong or China domicile can be sold directly in each others’ markets.
Hong Kong has always been a distribution center for mainly European-domiciled funds, so the concept of a Hong Kong-domiciled fund is relatively novel.
However, some large firms such as Amundi have decided to launch Hong Kong-domiciled products to get the experience and a track record, Li said.
“When the regulations on fund recognition come out, they will likely favour some the bigger firms with a track record,” Li said. “Regulators don’t want to open the market to funds with no track record.”
Developments with the mutual recognition framework will be speeded up by the Hong Kong-Shanghai stock market connect expected to start this month, Li added.
“Logistics, tax and operational matters will be ironed out through the market connect. But China will take a conservative approach in the beginning, like they did with QFII and RQFII.”
