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UBS AM sees $3.5trn flowing into China fixed income

The firm has ambitious plans to target on and offshore investors in China and sees the asset pool in the mainland growing signficantly, said Rene Buehlmann, head of Asia Pacific and group managing director for UBS Asset Management.

Buehlmann, speaking at a press event in Hong Kong today, said that if RMB government bonds were today included in global bond indices, they would comprise about 14%.

“If we assume fixed income is included over time on those indices, and all global institutional investors allocate only 7% or half [of the RMB government bond allocation] to the benchmark, then we forsee inflow of $3-3.5trn into the China fixed income market.

“It’s massive. Our fixed income managers call this a once in a lifetime event in terms of allocating money.”

Big China plans

Buehlmann said UBS intends to be the “first call” for offshore institutional investors who want to go onshore, onshore investors who want offshore exposure and domestic investors who want to invest domestically through an “institutional style” manager.

The targeted investor base is institutional and high net worth investors.

Additionally, the firm believes the pool of managed assets in China will see massive growth. By UBS estimates, today there are one million high net worth investors with around RMB 30trn ($4.5trn) in assets.

The total onshore investor base has $34.1trn (CHF 33trn) in RMB assets. 

“We expect that to double in six years. The pool of money that wants to be invested offshore is growing significantly.”

UBS has a substantial presence in China, Buehlmann said, with three joint ventures and operations for wealth management, asset management and securities. It also has two wholly foreign-owned enterprises (WFOEs), which allows it to manage and advise institutional investors.

“We expect we can manage institutional type of portfolios with international standards out of Shanghai and sell directly to China’s domestic institutional clients. Likewise we will be able to manage domestic fixed income capabilities for international clients who want to go into China.”

This year the firm also plans to rollout alternatives funds for domestic institutional clients.

He admitted that fund distribution is a big challenge in China, but he believes the firm’s joint venture with domestic fund house SDIC Fund Management will provide an advantage.

“I know you’ve read a lot about foreign asset managers and the challenges of partnerships in China. But we’ve worked with SDIC ten years and have had a very good experience with them.”

One risk is that capital controls are instituted again in China, he said. He was less concerned about offshore institutional investors holding back due to a pessimistic view of China.

“We have institutional clients globally who say they are ready to allocate money to China but want to have someone they know and want to invest through an institutional process.’”

Part of the Mark Allen Group.