Published by Fund Selector Asia – 23rd Aug 2018
Fixed income specialist Income Partners hopes to make a big splash in China’s onshore market, says Emil Nguy, chairman, chief executive officer and co-chief investment officer at the Hong Kong-based firm.
Nguy revealed that the firm is currently in the process of obtaining a private fund manager (PFM) license and hopes to get approval by the end of the year.
“Next year, we are looking to launch our first product domestically in China,” he said. “In terms of strategy, we are still studying the distribution channels and client preference.”
The firm specialises in fixed income and manages locally-domiciled and offshore regulated Asian fixed income funds. Earlier this month, the firm established an investment management wholly-foreign owned enterprise (IM WFOE) in Shanghai after roughly one year of preparation. The entity is the prerequisite for onshore fund distribution.
The Shanghai office has five people in compliance, sales and portfolio management roles.
The firm also runs a representative office in Beijing, where it focuses on investment research.
Being a new entrant to the IM WFOE club, Nguy said research on domestic investment ideas is the priority. “We started with research on the [onshore] bond market which is huge, containing more than 10000 names.”
Nguy added that starting a fund business in China requires a high level of commitment before applying for authorisation.
“Before registering with the authority, office, people and capital have to be ready. Elsewhere, you can equip it simultaneously while waiting for the official approval. We feel that the regulator [in China] wants serious market players only.”
Two-way WFOE
Nguy said his firm’s WFOE is not purely an onshore foothold to service domestic investors but also for clients from overseas.
“The benefit should work in a two-way direction. Being on-the-ground, we can support the international clients who want to allocate more money to Chinese assets.”
He believes his firm has a full understanding of foreign investor concerns when investing in China.
“We speak the same language in terms of standards and regulatory issues, which is where the trust comes from.”
Yet foreign participation in the onshore bond market remains small, accounting for around 3% of China’s RMB 60trn ($9.10trn) bond market, according to data from the China Central Depository and Clearing Company.
The low representation of onshore bonds among foreign investments is likely to bring “only upside”, according to Nguy.
“Since the global allocation is small, growing by 2-3% will bring a doubling effect to the market. We see only upside in expanding [the foreign participation].”
Few foreign managers
China’s large fund industry is only beginning to open and the foreign presence is still tiny.
Only 14 foreign managers out of 9000 are PFM licence holders, according to the latest Amac statistics. The foreign managers have launched 17 funds aimed at domestic professional investors out of 36,000 total products available.
Under tighter regulation of China’s asset management industry, Nguy said foreign players should have an edge by providing regulated products. This year, China’s regulators start cracking down on non-standardised investment products, which are mainly bonds issued through shadow banking channels.
“Removing implicit or guaranteed return in bond products from the domestic market will create a level playing field. Products managed with research is what fund management is all about.”
He envisions China will play a big part in his company’s fixed income strategy in the medium term.
“In China, if you do one thing well, it is good enough. We continue to focus on one asset class.”
