Fullerton, NB expand China business scope

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The two foreign firms are the first to receive approval to provide onshore investment advisory services in China.

Fullerton Fund Management and Neuberger Berman’s wholly foreign-owned enterprises (WFOEs) have received the green light from the Asset Management Association of China (AMAC) for onshore client advising.

The qualification enables WFOEs to advise onshore clients on their investment holdings or portfolio, a spokeswoman at Fullerton explained. These clients are institutional investors, including banks and corporations.

“We look forward to extending our expertise to a wider range of investors, accelerating our business growth and deepening our presence in this important market,” Jenny Sofian, Fullerton’s CEO, said in the statement.

Fullerton and Neuberger Berman are the only foreign managers approved for advisory, according to Hui Miao, Singapore-based analyst at Cerulli Associates.

FSA sought more information from Neuberger Berman, but the firm was not able to comment in time for publication.

Fullerton’s WFOE already has a private fund management (PFM) licence, which enables foreign firms to launch onshore products to domestic investors. It is the only Singapore-based asset management firm that has launched an onshore fund in China.

Neuberger Berman also launched an onshore fund via the PFM route and has a qualified domestic limited partnership (QDLP) licence, which enables foreign firms to raise money domestically to invest in offshore investments.

Meeting requirements

While this is the first time for foreign managers to receive such qualification, the development is not new in China, Cerulli’s Hui explained.

“The detailed guidelines were issued in October 2016 for private securities fund managers to provide investment advisory to securities firms, fund management companies and futures companies.

“But since some qualification requirements, such as the manager needs to be a member of the AMAC and has to be registered as a PFM for at least one year, are not easy to be fulfilled by newly-registered foreign PFMs, this may not have been heavily discussed by foreign media,” she said.

She added that since the qualification is granted by the AMAC under the China Securities Regulatory Commission, banks, trusts and insurers, which are regulated by the China Banking and Insurance Regulatory Commission, may not follow the same requirements when hiring an advisor.

“However, in the newly-released (late 2018) draft rules on banks’ wealth management subsidiary, the proposed requirements on the subsidiaries’ sub-advisor are almost identical to [AMAC’s] qualification.

“That makes such qualification even more meaningful to PFM managers, despite the fact that banks may have higher criteria in practical advisor selection.”

Advice – or research?

Chinese regulators have been relaxing rules on entities that can provide investment advisory services to onshore investors.

In June last year, for example, the CSRC issued interim provisions that allow Hong Kong-licensed asset managers to serve as sub-advisers to onshore Chinese fund managers, according to a Baker McKenzie document. Under the interim provisions, Hong Kong asset managers are permitted to act as investment advisors to domestic funds that invest in Hong Kong equities via the Stock Connect.

In April, the CSRC also allowed joint venture securities firms to engage in a wider range of services, which include “securities investment advisory” and “financial advisory business related to securities trading and securities investment activities”, according to a Han Kun Law Offices document.

Most recently, the CSRC also drafted new measures in January for combining the qualified foreign institutional investor (QFII) and its renminbi equivalent (RQFII) schemes. Both schemes allow foreign managers to invest in onshore securities, within allowable quotas.

The draft measures also provide that a qualified investor can appoint its affiliated PFM WFOE as the investment advisor for its investment in Chinese securities and futures, according to Melody Yang, partner at law firm Simmons & Simmons.

“This poses a question upon whether an investment advisory service is a regulated activity in China,” she said in a document.

“It is also a bit uncertain how one may differentiate between ‘investment advisory services’ and other technical services such as research and data analysis,” she added.

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