The investment advisory licence
In addition to its PFM licence, Fullerton’s WFOE also obtained in April an onshore investment advisory licence in China, which enables foreign firms to advise onshore clients on their investment holdings or portfolio.
Only Fullerton and Neuberger Berman have so far obtained this licence.
Li explained that it will enable the firm to do more business in China, given that having a PFM licence has some limitations. For example, although private funds in China have no AUM limits, the number of investors is limited to 200.
“Without the investment advisory licence, we can only manage a private fund and distribute it through a distributor,” he added.
“With the new licence, we can advise institutional clients,” he said, adding that the firm has already started discussions with potential clients for advisory services.
Regulatory developments
Separately, Li is also positive on a number of regulatory developments in China.
For example, he said that the regulator’s plan to revise and combine the RQFII and QFII schemes can help foreign PFMs seed their own private funds via their own QFII/RQFII quotas.
Currently, the two inbound programmes do not allow foreign investors to invest in private funds. However, with the unified scheme, foreign investors will be able to invest in private funds.
“Foreign PFMs could be seeded by their own QFII/RQFII quotas,” Melody Yang, Beijing-based partner at law firm Simmons & Simmons, said in a previous interview with FSA. “PFMs are under pressure for a fund to reach a certain size in order to implement their investment strategies and maintain the operations of the PFMs.”
Fullerton’s Li also said that the move by the Chinese regulators last year to allow domestic banks to set up wealth management subsidiaries is an opportunity for foreign players.
Like banks, these wealth management subsidiaries can manage wealth management products (WMPs), which invest in products issued by trust companies, securities firms and subsidiaries of fund houses, and funnel the proceeds into loans for corporations. However, unlike bank-run WMPs, the new WMPs will have no minimum investment. They can also directly invest in stocks and can be distributed through channels other than banks.
WMPs may rival PFM funds, because both products are under the “private category”.
As of the end of last year, 16 banks announced plans to set up WMP subsidiaries, with the Industrial and Commercial Bank of China (ICBC) injecting the most capital (RMB 16bn) to its subsidiary, according to a Cerulli Associates report.
Instead of competing directing against these WMPs, Li believes that there will be more collaboration between these subsidiaries and foreign PFMs.
“The wealth management subsidiaries need time to build out their investment capability. So at the moment, [I expect that] they will work with external managers.”
Miao Hui, senior analyst at Cerulli Associates, shares the same sentiment.
“Collaboration will be more than competition between banks and PFMs in the near future,” she said previously.
She explained that under the guidelines for WMP subsidiaries, PFMs are allowed to provide advisory services to WMPs, while WMPs that are only available to qualified investors can invest directly into private funds.
