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PGI and CCB venture plans cross-border funds

US-based Principal Global Investors intends to support Chinese asset management partner CCB in launching funds offshore, said PGI's CEO Jim McCaughan.
UBS AM, Invesco launch onshore funds in China
Shanghai landmark skyscraper in the lujiazui financial district at night, Shanghai, China.

PGI’s joint venture with China’s CCB, called CCB Principal AM, will be used to help both parties establish cross-border products.

CCB is planning to launch active and passive funds offshore using PGI’s distribution support, McCaughan said, though he declined to give a timeline.

“There are no announcements yet, but work is going on right now,” he said. “The natural way is through Ucits funds investing through the Stock Connect.”

CCB Principal AM is the sixth largest Asia-based asset manager in the region (ex-Japan), with about $83bn in assets under management, according to Willis Towers Watson.

The venture, however, has been limited to managing onshore funds with investments from local investors, McCaughan said.

“China has currency controls so the funds we run for clients in the world are generally not useful for clients in China,” McCaughan said. “There are a limited number of institutional investors in China who buy our international funds and we have some high net worth using quota to invest internationally. But 95% of the Chinese asset management market is local-to-local.”

However, new avenues are opening. Asset managers such as Fidelity and UBS AM have set up an investment management WFOE structure in China, which allows them to launch onshore funds for local investors.

To build an onshore presence, PGI is considering such a structure. “We probably will [set up an IM WFOE], but it could be a while,” McCaughan said.

He added that his firm plans to bring more investment staff to the region. Currently the firm has 90 people in Asia, including Japan and Australia.

“In 3-5 years, we’ll have quite a few more people [in Asia]. There’s a lot of wealth in Asia that didn’t used to be here and this is a continued growth area for us.”

In 2018, the firm will be adding investment team in the region who will focus on emerging market debt.

“What’s changing is that things that used to be done by banks are now done by world capital markets,” he said, referring to credit financing. “So it’s a good structural opportunity to develop fixed income management in a lot of countries.”

In Asia, PGI’s product demand has been largely around income: high yield bonds, investment grade credit, mortgages, real estate and REITS.

“All income-biased products are what Asian investors have bought from us and they will continue to be structurally important.”

Part of the Mark Allen Group.