Income Partners, which focuses on Asia fixed income funds, has submitted an application to sell its Managed Volatility High Yield Bond Fund to mainland investors via the Hong Kong-China Mutual Recognition of Funds (MRF) scheme, according to records from the China Securities Regulatory Commission.
Once approved, it will be the firm’s first MRF fund.
The firm believes that the MRF scheme provides foreign players sizable opportunities to tap the onshore market, according to Poon Suen Son, Hong Kong-based chief operating officer and general counsel at Income Partners.
“This is a great opportunity to diversify the investor base [to include onshore retail and professional investors]. The onshore markets are also a key market for us given the size of the market, and over time, will rival the US in terms of its size and depth,” he told FSA.
As of the end of March, assets in China’s retail fund industry totalled RMB 16.64trn ($2.34trn), while the AUM in the country’s private fund market was RMB 14.25trn, according to data from the Asset Management Association of China.
The share of MRF fund assets sold in China remains small, however. Since the programme began in 2015, northbound funds (Hong Kong-domiciled funds sold in China) had inflows of $15.3bn as of the end of March, according to data from China’s State Administration of Foreign Exchange.
But small inflows have not stopped managers from joining the MRF.
For example, players such as Pictet Asset Management and Fidelity recently joined the programme. Pictet AM lodged an application to roll out its Strategic Income Fund in September, which already received regulatory approval in February to be launched in China. Meanwhile, Fidelity lodged an application for two MRF funds, which are still being reviewed by the CSRC, the regulator’s records show.
Since the MRF programme began in 2015, at least 20 northbound products have been approved by the CSRC.
Onshore plans
Although Income Partners’ MRF fund is still pending regulatory approval, Poon noted that the firm has already partnered with a securities firm in China for distribution, but did not name the firm.
The Income Partners Managed Volatility High Yield Bond Fund was incepted in 2011 and had RMB 1.3bn ($188m) in assets as of the end of March, according to its factsheet.
The fund is denominated in renminbi and invests in high yield bonds, with a strong tilt toward real estate and China. Currently the manager is holding 20% of the portfolio in cash.
The Income Partners Managed Volatility High Yield Bond Fund
“Given the low yielding environment in Europe and the US, we think the opportunity set for credit is in Asia. Our fund is now positioned to take advantage of a potential rally in Asian credit,” Poon said.
The firm has another SFC-registered Hong Kong-domiciled fund, the RMB Bond Fund, which has RMB 332m in assets. However, it is intended for offshore investors.
The firm’s decision to join the MRF scheme comes after it received a private fund management (PFM) licence for a Shanghai-based wholly foreign-owned enterprise (WFOE) in March.
Having a PFM licence enables foreign entities to develop and sell funds investing in onshore assets to domestic qualified investors, which include institutional and high net worth investors.
According to Poon, the firm is now working with an onshore distributor to launch PFM products this year.
“We are working with an independent financial adviser in China, with a view to launching one or two PFMs by the end of the year,” he said.
Meanwhile, in Hong Kong, the firm is focusing on existing products.
“Whilst we are in a number of discussions to launch fixed maturity products, our focus remains on expanding the distribution capabilities of our existing products,” Poon said.
In total, Income Partners’ AUM is $1.45bn, which includes mutual and private fund assets, as well as segregated accounts it manages on behalf of institutions, according to Poon.
The Income Partners Managed Volatility High Yield Bond Fund versus its sector
