CSOP Asset Management has established a strategic partnership with Pennsylvania-based Pacer ETFs, which manages $5.9bn in assets, in a move to expand in the US.
Under the partnership, Pacer acquired the Hong Kong firm’s US-listed FTSE China A50 ETF, which will be renamed as the Pacer CSOP FTSE China A50 ETF, according to a statement from CSOP.
Although Pacer acquired the one and only ETF that CSOP manages in the US, a Hong Kong-based CSOP spokesman said it does not signal an exit from the US market.
The move is a “strategy change”, in which Pacer will mainly be responsible for the sales and distribution of the product in the US, while CSOP will maintain day-to-day management of the portfolio, he said.
The spokesman added that both firms are also mulling plans to co-launch other ETFs in the US market, such as bond inclusion products that will include onshore Chinese securities.
“However, there hasn’t been any solid idea yet, just preliminary thoughts based on our understanding,” the spokesman said. “It will be dependent on US investors’ acceptance and understanding of China asset investment.”
US market challenges
The new partnership comes after CSOP de-listed two products in the US.
The firm first entered the US market in 2015 when it launched three ETFs. However, it decided to liquidate its China CSI 300 A-H Dynamic ETF in 2018 and its MSCI China A International Hedged ETF in January, according to separate filings from the US Securities and Exchange Commission.
The spokesman explained that the firm liquidated both products due to low demand for China-focused investments, which he believes results from lack of knowledge about the asset class. The US ETF market is also well-established with many product offerings, so it is even more difficult for new passive products to accumulate assets.
He added that larger investors in the US and Europe, such as institutions, may prefer to invest in Hong Kong-listed China-focused ETFs, given that they tend to have large AUM and more liquidity.
For example, CSOP’s FTSE China A50 ETF in Hong Kong has RMB 9.58bn ($1.35bn) in assets, while the same fund listed in the US only has $8m in assets, according to CSOP’s website.
However, CSOP believes that having a domestic partner in the US should help the firm overcome distribution hurdles.
“As we don’t have a local sales team to promote the product to either retail or institutional investors, it is difficult to get the ETF running,” the spokesman said.
“From our learning, the successful ETF issuers in the US have a considerable number of sales staff to do the ground push.”
With limited product offerings in the US, the firm finds it inefficient to have a dedicated sales team to push homogenised China-flavoured ETF products.
“That’s also the reason why we partnered with Pacer ETFs — to leverage on their sales and distribution capacity.”
Other partnerships
CSOP has a similar collaboration with a European firm for an ETF that is listed in the region, the spokesman added. In 2014, the firm partnered with UK-based Source to launch the CSOP Source FTSE China A50 Ucits ETF, in which CSOP manages the fund and Source is responsible for distribution.
The spokesman noted that Invesco is now responsible for the ETF’s distribution after it acquired Source last year.
Other Asia-based ETF managers have also partnered with players outside the region. In 2016, Hong Kong-based ICBC Credit Suisse Asset Management (International) partnered with New York-based Wisdomtree to jointly launch ETFs tracking the S&P China 500 Index.
In 2018, Premia Partners also partnered with Wisdomtree to develop smart-beta products for the Asian ETF market. The partnership aims to provide Asian clients with access to Wisdomtree products.
