Posted inRegulation

Fidelity’s WFOE obtains first private fund license in China

The firm will be allowed to create onshore investment products for eligible Chinese institutional and high-net-worth investors, and UBS AM is expected to follow.
Fund Selector Asia

Fidelity International’s investment management wholly foreign-owned enterprise (IM WFOE) obtained a private fund management license in China on January 3, according to a Fidelity spokeswoman.

This marks the first time a global asset manager is registered as a private fund management company in China, according to a statement from the firm.

Under the license, asset managers are required to launch a product within six months after registration. If not, their private securities fund license will be suspended, Aries Tung, head of strategy and business development for China at UBS Asset Management, said in a previous FSA interview.

“[The fund managers] are not rushing to apply for the license unless they are very confident that the investment platform and the people are ready,” he said.

The Fidelity spokeswoman said the firm aims to launch its first onshore product within six months, but did not elaborate on the kind of products because it is evaluating a number of options. Fidelity will target both high-net-worth individuals and institutional investors, she added.

Registering as a private securities fund manager through the Asset Management Association of China (AMAC) is a functional step before a firm can launch onshore equity and fixed income-focused onshore products to investors. It would take 20 days to get approval from the AMAC, according to the association’s online FAQ.

The firm did not provide the application date for the license through the AMAC, but said the registration was a smooth process.

Fidelity first established its WFOE, FIL Investment Management (Shanghai) Company, in 2015.

It has been operating in China since 2004, offering offshore capabilities to domestic institutional clients and retail investors through partnering with banks under the qualified domestic institutional investor (QDII) programme, Mark Talbot, managing director for Asia-Pacific, said in the statement.

“This latest development expands our capabilities to support Chinese clients’ needs to invest both onshore and offshore,” he said.

The firm has representative offices in Shanghai and Beijing, as well as an operating center in Dalian, employing around 400 staff in China, according to the statement. It has a quota of $1.2bn under the qualified foreign institutional investors (QFII) scheme, which allows Fidelity to invest in Chinese capital markets.

UBS to follow

Like Fidelity, UBS AM plans to launch onshore products in the second half through its WFOE, according to Tung. It now has two WFOEs, one in Beijing, which was set up in 2011 and acts as a private fund manager for real estate, private equity and infrastructure investment; and the other in Shanghai, which was granted the Qualified Domestic Limited Partner (QDLP) license in March 2015, with $100m of quota for non-retail investors to buy offshore products.

What the firm is doing now is converting the QDLP company into one that comprises both QDLP and an investment management business, Tung said.

The QDLP programme allows firms to raise renminbi from wealthy and institutional investors to invest overseas.

As of December, nine IM WFOEs have been established, and that number is expected to double shortly, according to Shanghai-based consultant Z-Ben Advisors. Allianz Global Investors, Neuberger Berman, Vanguard and Mirae Asset Management were among the latest to set up an IM WFOE.

Other asset managers that have IM WFOEs are Aberdeen Asset Management, Bridgewater Associates and JP Morgan Asset Management.

Echoing Z-Ben, Sandra Lu, partner of Llinks Law Offices, said last month during the Hong Kong Investment Funds Association Annual Conference that in the past six months, AMAC saw some 20 foreign fund houses show interest in setting up an IM WFOE.

Part of the Mark Allen Group.