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Fidelity WFOE debuts onshore bond fund

Fidelity International has announced the launch of its China Bond No.1 Private Fund, the first ever fund product launched by a foreign firm in China.

FIL Investment Management, Fidelity International’s Wholly Foreign-Owned Enterprise (WFOE), registered the fund with the Asset Management Association of China (AMAC) on Thursday, according to a notice (in Chinese) on AMAC’s website.

Set up at the end of March, the fund primarily invests in the Chinese onshore bond market with an objective to achieve income and capital appreciation, the firm said in a press release. 

The fund has initially been run using Fidelity’s own seed money, as is the firm’s practice, but it is now open to qualified external investors, according to a spokeswoman for the firm. 

The fund is managed by Freddy Wong who has recently relocated to Shanghai from Hong Kong. He is supported by an investment team recruited domestically, the firm said.

“The size of the onshore [bond] market is currently over RMB 65trn ($9.4trn), and is expected to reach RMB 100trn by the year 2020, surpassing that of the Japanese [bond] market,” Wong said. 

The eligible securities include bonds (including, but not limited to those trading in China’s interbank bond market), preferred shares, bond repos, securitized assets, interest rate swaps, treasury futures and other authorized financial instruments, according to the AMAC filing.

Daisy Ho, Fidelity International’s managing director of Asia ex-Japan, said: “As over half of the onshore bonds do not have a rating from any rating agencies, proprietary research is critical to finding investment opportunities in China. We have expanded our research capabilities to offer Chinese investors a fundamental research-based private fund.”

Private securities funds

So far, Fidelity is the only foreign firm that has registered as a private securities fund management company through its WFOE in China. This gives the firm the ability to launch onshore products and to raise money from domestic institutional clients and high net worth individuals.

Fidelity’s WFOE can also launch products that invest in secondary markets, including equities. Chinese regulators have not yet specified whether WFOEs can be granted mutual fund licenses to sell products to retail investors.

China’s private securities fund industry, which comprises hedge funds, private equity and venture capital funds, is a big part of the mainland asset management industry. Its size, in terms of committed capital, reached RMB 11.9trn as of March, surpassing that of the mutual fund industry (RMB 9.3trn), according to AMAC data.

There are 7,847 private securities fund managers in China with RMB 2.6trn of assets under management as of March, the data showed.

Part of the Mark Allen Group.