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China approves Two Sigma for PFM

The New York-based hedge fund now has six months to launch an onshore product in China.

Two Sigma China, the wholly-foreign owned enterprise (WFOE) of Two Sigma, recently received a private fund management (PFM) licence, according to Asset Management Association of China (Amac).

In November last year, the firm obtained an investment management WFOE licence, together with Hong Kong-based Zeal Asset Management.

Having an IM WFOE enables foreign managers to apply for a PFM licence from the regulator. With a PFM licence, foreign firms can manage onshore domestic funds and sell them to China’s institutional and high net worth segments.

After obtaining the license, the firm now has to roll out at least one private fund product in the following six months.

It is unclear what type of fund the firm is planning. FSA sought more information, but representatives were unable to reply before publication.

The assumption is that a quant fund is planned because the firm is known for employing technology such as big data applications in the investment process.

“We will continue to expand the China team and local infrastructure to support our development of a domestic fund management business and use our data science methods and advanced technologies to serve clients in China,” said Kenny Lam, chief executive officer of Asia-Pacific, in a statement.

In May, the firm partnered with Ping An’s One Connect and Wharton School to launch the Gamma Star program, aiming at offering comprehensive fintech training to students and young people in China, according to the statement.

Two Sigma has an office in Hong Kong, with a dealing in securities (Type 1) licence that the firm obtained in 2014, according to records from the Securities and Futures Commission. With the licence, the firm is able to sell mutual funds to clients in Hong Kong.

However, the firm does not have SFC-authorised funds, the regulator’s records show.

PFM boom

The number of foreign fund houses quietly launching onshore funds in China is growing.

Earlier this month, German asset manager Allianz Global Investors registered its first PFM product.

Last month, Blackrock’s third onshore product got approval from the regulator. The first onshore product, the China A-Share Opportunity Fund Phase I, was launched last year, FSA previously reported.

Also last month, Hong Kong-based Value Parters registered its seventh onshore product and now has the most PFM funds.

Amac records show that Winton Investment Management (Shanghai), the WFOE of British quant fund manager Winton Capital, runs six PFM products.

As Chinese regulators continue to open the financial markets to foreigners, fund houses are seeing the value of structuring an onshore presence to sell to domestic investors.

This year, regulators said foreign PFMs are now allowed to convert their business into a public fund management company (FMC), which would permit them to distribute products to the RMB 13.9trn ($1.95trn) retail investor base without closing their PFMs first.

The market consensus is that a foreign PFM may be allowed to apply for conversion to FMC in 2021, but no guidelines or detailed timelines have been provided, Hui Miao, Singapore-based senior analyst at Cerulli Associates, said previously.

“In general, it is a good signal. It dismisses foreign managers’ concerns over the continuity of their private fund business and dismisses uncertainty about the continued market liberalisation amid US-China trade tension,” Hui said.

Part of the Mark Allen Group.