INTERVIEW: Opportunities on both sides of the border

Chen DingVarious cross-border schemes provide Chinese asset managers and their Hong Kong subsidiaries with opportunities. Stefanie Eschenbacher talks to Chen Ding of CSOP Asset Management about Hong Kong’s Capital Investment Entrant Scheme, renminbi qualified foreign institutional investor products and Ucits.

Hong Kong was once the world’s gateway to China; today it is China’s gateway to the world.

CSOP Asset Management is, with $1.95 billion of assets under management, one of the largest subsidiaries of Chinese asset managers in Hong Kong.

“At first sight, we are all Chinese,” says Chen Ding, chief executive officer of CSOP Asset Management. “The question is, who can provide a product with consistent performance.”

Dividing her time between Shenzhen and Hong Kong, Ding says her goal is to provide leading China-related investment services to global investors, as well as global investment opportunities to Chinese investors.

CSOP Asset Management seeks to launch mutual fund products that are permissible investments under Hong Kong’s Capital Investment Entrant Scheme. Under this scheme, foreign investors who commit to invest HK$10 million ($1.3 million) in specified financial assets can apply to become permanent residents of Hong Kong.

“We plan to register one of the Ucits equity funds in Hong Kong and offer it to high-net-worth individuals who apply to immigrate to the city under the scheme,” she says.

CSOP Asset Management already manages public and private funds, provides investment advisory services, and manages discretionary accounts for institutional investors. Ding says apart from strengthening the existing product range, her vision is also to expand into retirement planning, insurance and wealth management.

“In the mid to longer term, we can foresee that global investors will increase their investment allocation to China,” she says. “This is already happening and is expected to accelerate further with the renminbi internationalisation and loosening of capital controls.”

Hong Kong subsidiaries of Chinese asset managers have largely built their business models around these schemes, and often refer to them as a “gift” from the regulator.

Ding says renminbi qualified foreign institutional investor (RQFII) funds, which allow renminbi funds raised outside China to be invested in China, will be her strategic focus for now.

“This scheme creates ample business opportunities for asset managers like ourselves whom possess both local and international know how.”

CSOP Asset Management is one of the largest RQFII managers by assets under management, and one of the more successful ones when it comes to take-up of these products.  

It was also one of a handful of asset managers that were admitted into the RQFII exchange traded fund (ETF) scheme, the second programme.

The CSOP FTSE China A50 ETF, its RQFII ETF, recently received the third allocation of quota. It has doubled in size to 10 billion renminbi ($1.6 billion), the largest of the four RQFII ETFs launched since July.

An application for a fourth increase in quota is already being prepared as the asset manager is seeking to meet demand from investors.

Being denominated in renminbi, Ding says the product should be attractive for those who wish to gain exposure to renminbi, but also to get direct access to China’s domestic
A-shares market.

The FTSE China A 50 index captures the largest companies by full market capitalisation, including stocks listed on the Shanghai and Shenzhen stock exchanges.

“We would be interested in working with this type of index in the future if we launch more index-based products,” she says. In the last couple of weeks a dual counter was added to the RQFII ETF to offer two trading counters on the Stock Exchange Hong Kong – in renminbi counter and Hong Kong dollar counter.

Its first RQFII product, the Shen Zhou RMB fund, fund launched in Hong Kong in February and invests directly into China’s bond market.

Oversupply and limited demand meant the take-up of the first RQFII programme was generally slow –21 asset managers were granted a portion of the original 20 billion renminbi RQFII quota; the Hong Kong’s Securities and Futures Commission approved 18 funds within 19 days.

These RQFII funds were considered too similar, too plain vanilla. Such a RQFII fund had to invest at least 80% fixed income issued in China, with an optional, with investments in A-shares or other permissible investments capped at 20%.

The first funds of the RQFII programme have fallen short of expectations and only a few – CSOP Asset Management being one of them – have managed to meet their fundraising targets.

“We received criticism for investing everything in fixed income, at a time when equities performed well,” Ding says. “But it was designed to be a low-risk product with low volatility, which was later well-received by investors when the market turned.”

Meanwhile, CSOP Asset Management is developing its qualified foreign institutional investor business, which includes launching and managing funds as well as establishing an advisory business for foreign investors.

It was one of the first Chinese asset managers to sell Ucits funds to European investors. Its RMB High Yield Bond fund focuses on renminbi high yield and its China New Balance Opportunity fund is a Chinese equity fund.

Ding says although the Luxembourg-domiciled Ucits IV structure is more expensive than a Hong Kong fund structure, the China Dragon umbrella is more suitable for a global distribution strategy.

On the other side of the border, wealth creation in China presents an opportunity. Ding adds that managing their overseas investment will be a major focus for their business.

In addition to attracting regional and global investors to China, Ding’s team is also responsible for launching products tailored to Chinese investors’ global investment needs. This includes, for example, wealth management services for high-net-worth individuals from China.

Together with its parent company, China Southern Asset Management, it is also developing investment products. This includes global equity and fixed income funds, ranging from money market funds to global ETF and index funds for private banks in China.

“We are not aggressive,” Ding says of her strategy. “We do not focus on what other people doing.”

She says the growing middle class, the development of a pension system and social welfare network will create a wealth of opportunities for asset managers.

“The Chinese economy will not crash, but it will slow down,” she says. “More importantly, its structure will change.”

China Southern Asset Management became the first Chinese asset manager to set up an offshore entity when it incorporated CSOP Asset Management in Hong Kong in 2008.

The Chinese parent asset manager has 208 billion renminbi of assets under management, large even by Chinese standards. It was the first asset manager to launch a Chinese overseas investment mutual fund under the qualified domestic institutional investor scheme.

Today there are 13 subsidiaries of Chinese asset managers in Hong Kong. Moving to the special administrative region is often considered the first step to international expansion.

Having spent more than a decade in the industry, Ding now oversees CSOP Asset Management and the international business division at China Southern Asset Management.

She started developing the institutional and pension business and later led to build the international business team, highlighting that the core team comes from diversified backgrounds, all with international experience.

©2012 funds global asia

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