The higher service fees associated in qualified domestic limited partnership (QDLP) funds have not stopped mainland investors from investing in them, according to Fleishman Hillard’s The Future of Asset Management in China (PDF) report.
In a survey of 250 domestic professional investors, which include finance and banking professionals, 89% said that the service fee of QDLPs is higher than products offered by local asset managers.
However, domestic investors found that the higher fees in QDLPs are acceptable, with around 90% of them indicating they had invested in them.
Survey findings show that investors strongly or somewhat believe that the investment strategies of these products are clear and unique, and have also performed better compared to funds offered by local managers.
“While Chinese investors will pay higher fees for foreign fund management relative to local managers, they expect to get some added value in the form of unique investment strategies and capabilities,” the report said.
Launched in 2013, the QDLP scheme allows licensed foreign asset managers to raise renminbi-denominated sums from qualified individual and institutions in China, with assigned quotas, to invest in offshore traditional and alternative investments. By April 2020, there were 40 QDLP funds offered by 28 managers.
The feedback is similar on private fund management (PFM) products offered by wholly foreign-owned enterprises (WFOEs). Investors surveyed found that the higher fees were acceptable given the strategy and performance of the funds. PFM funds, which are only available to professional investors, invest in onshore securities.
“Appetite for WFOE products clearly remains strong, reflecting the confidence many Chinese investors have in overseas fund managers,” the report said.
Like QDLP funds, PFM funds offered by foreign managers are also popular, with 89% of the investors surveyed indicating that they have invested in them.
Besides QDLP and PFM funds, the report added the prospect for overseas asset managers in the onshore retail market looks promising, as nine out of 10 investors are interested in onshore retail funds offered by foreign players.
So far, only Blackrock has received approval from the China Securities Regulatory Commission to establish a wholly-owned retail mutual fund firm. Other foreign managers that have filed an application for the onshore retail license include Neuberger Berman and Fidelity, which are still waiting for regulatory approval.
Covid-19 vs US-China trade tensions
When it comes to investment risks, four out of five investors said Covid-19 has affected their financial situation, but only 21% said they are “extremely uncertain” about their financial situation in the near-term.
More than half (56%) said the pandemic had low impact, while 23% indicated it had no impact at all in their financial situation.
However, geopolitical tensions between the US and China have made 90% of the investors surveyed to alter their risk asset allocation. Nearly half of them see the tensions as a buying opportunity and have increased their risk appetite, while 46% have moved into lower risk options.