William Ma, Noah Holdings
Noah Holdings has become one of the largest distributors of qualified domestic limited partnership (QDLP) products to Chinese investors, according to William Ma, Hong Kong-based chief investment officer.
The QDLP programme allows foreign managers to raise money in China, with assigned quotas, to invest in offshore traditional and alternative investments, including overseas equity and bond funds, hedge funds and real estate.
Ma, who has also been a member of the QDLP approval panel for the last six years for the Shanghai Municipal Government, stressed the need for Chinese investors to invest in offshore products, given the wild annual swings in the China market.
“For domestic Chinese investors, it is not ideal if 100% of their portfolio is correlated to the China market. We believe that QDLP products provide good diversification in terms of the different geographic and asset class exposure they provide,” he told FSA.
Around 30% of the firm’s assets in its discretionary portfolio offered to Chinese investors are invested in QDLP funds, as well as Hong Kong-domiciled funds offered in China via the mutual recognition of funds (MRF) scheme, Ma added, but declined to mention names.
According to the firm’s third quarter results statement, Noah invests in QDLP funds managed by private equity firms The Carlyle Group, Blackstone, KKR, Apollo Global Management, Warburg Pincus and TPG.
However, Ma noted that there are only a limited number of QDLP products available in China.
Every year, there would only be around four-five players receiving QDLP quotas, he explained. “Capacity is also very limited, with just around $50m quota per player.”
The QDLP programme was revived at the beginning of 2018 after a three-year halt by the mainland regulator. There are at least 20 foreign managers who have received a QDLP licence, according to data from Z-Ben Advisers. Last year, around 13 asset managers were granted a licence, including Barings, JP Morgan Asset Management and Morgan Stanley Investment Management.
Onshore fund investment
Ma said the firm hasn’t invested in onshore funds managed by foreign players, although he does not rule it out.
Foreign managers are able to offer onshore domestic products to China’s professional investors by registering as a private fund manager (PFM) with the Asset Management Association of China. As of end-2018, at least 15 foreign managers have PFM licences in China
“Our experience is that for global and local players, they are different in terms of their investment style. But across asset classes, their returns are similar.
“In private equity, for example, our observation in the past 10 years is that there are no clear winners on whether they are global or domestic, and we believe that the same applies in the public fixed income and equities markets.”
Ma said that in order for foreign managers to be successful in the China market, they should hire local investment professionals, which is difficult in China.
“Particularly in the hedge fund space, a lot of investment managers are very entrepreneurial in nature. So they prefer to launch their own fund instead of working for domestic or global asset managers.
“In [other global markets], launching your own fund is very difficult. In China, some people are rich. If you have friends and family that can invest $200m, then you can launch your own fund.”