Posted inNews

Value Partners to take on fund outsourcing

Hong Kong-based Value Partners is in talks with several foreign asset managers for a new fund outsourcing initiative and the firm aims to form partnerships by the end of the year.
Value Partners to take on fund outsourcing
David Quah, Value Partners

The outsourcing service, seen as a new revenue source for the firm, comes under the firm’s quantitative investment solutions unit. The unit manages assets of $296.3m, representing six exchange-traded products, four smart beta funds and a big data hedge fund registered in Hong Kong.

David Quah, co-managing director of the division, said the team has discussed outsourcing services with European, US and Chinese managers. The firm hopes to launch co-branded fund products and offer advisory services. But he said it is too early to give concrete details.

Quah said the service is set to target asset managers that are unfamiliar with Asian markets but interested in launching products that will be eligible for sale to investors in China, for example, via the planned ETF Connect. If the cross-border scheme is enacted, Hong Kong’s ETF market will be transformed from a metropolitan market into a continental-sized market, he added.

The ETF Connect aims to allow mainland investors to trade ETFs listed on the Hong Kong Exchange and Hong Kong investors to trade those listed in Shanghai and Shenzhen. The link is expected to launch by the end of 2018, according to the Hong Kong Investment Funds Association.

Cost efficiency is another concern for the managers. The entry barrier to launching ETFs in Asia can be high and a local office with staff and required licenses can be expensive, according to Quah.

Part of these expenses are passed on to the investors, which make the funds available in Hong Kong and Singapore slightly more expensive than those sold in the neighbouring markets. a report by Morningstar has found.

Sub-advisory services

Value Partners said it has obtained fund sale licences in Hong Kong and Singapore and registered with Ireland for Ucits products, enabling the firm to offer advisory, sales and marketing services to future partners based on any of the legal structures.

Overall, the outsourcing service would help the firm and its peers run economically. “They can continue to be a chef and cook the dish, and we will handle the restaurant for them,” he said, adding that potential partners could concentrate on what they do well while Value Partners could assist them with distribution channels, for example. Through the service, he expects the firm could “turn competitors or peers into partners”.

However, the potential partner cannot be too small in scale, for which Quah sets a bottom-line at $20m in AUM. He said otherwise, the partnership would not be economical enough to bring out synergy.

Although co-branding and subadvisory services for funds in Hong Kong are not as common as in US and Europe, they are not new to the market. Two asset managers have partnered with foreign peers to launch leveraged and inverse ETF products in the SAR.

E Fund Management‎ has appointed Yuanta Securities Investment, an ETF specialist in Taiwan, as technical advisor on two co-branded products, which were listed in March and August last year. Another example was China Asset Management, which launched two products in 2016 with its subadvisory partner US-based Direxion.

Part of Mark Allen.