Published by Fund Selector Asia – 9th May 2019
The Singapore-headquartered firm is looking at adding more investment staff and obtaining a QDLP licence.
After more than a year since the launch of its first onshore private fund in the mainland, Fullerton Investment Management (Shanghai), the wholly foreign-owned enterprise (WFOE) of Tamasek-owned Fullerton Fund Management, is mulling plans to expand its business, according to Mark Li, the WFOE’s Shanghai-based general manager and head of China sales.
Fullerton’s WFOE has a private fund management (PFM) licence, which enables foreign firms to launch China-focused private funds to onshore qualified investors in China, which include institutions and high net worth individuals. It obtained its PFM licence in September 2017 and launched an onshore equity fund in February last year.
It is also the only Singapore-based asset manager that has a private fund business in China.
Currently, Fullerton has 17 staff in Shanghai, which include nine investment professionals, Li told FSA. A majority of the investment staff focus on equities, with only two fixed income analysts.
“We are thinking of either adding a fixed income investment manager to prepare for a fixed income fund launch or other investment professionals for other capabilities, such as a multi-asset or fund-of-hedge-fund [manager],” he said, without giving details.
“It depends on market demand.”
The firm is also mulling plans to obtain a qualified domestic limited partnership (QDLP) licence, which enables foreign firms to raise money domestically to invest in offshore investments, with assigned quotas.
If obtained, the firm will join the likes of Blackrock, UBS Asset Management, Man Investments, Neuberger Berman and Value Partners that have adopted a “dual-track strategy”, in which they have both a PFM and a QDLP licence. Korea’s Mirae Asset was one of the latest to adopt such a strategy.
In total, there are around 20 QDLP licence holders and 15 PFM licence holders.
More distributors
Fullerton is also looking to work with more distribution partners, according to Li.
At the moment, the firm only has brokerage firm China Galaxy Securities as its distribution partner.
“Managing a fund for more than a year has enabled us to be more confident and be in a solid position to pitch to other distributors,” Li said.
“We are in a much better position now compared to when we first launched the product because, at that time, we could only show our QFII and RQFII track record, which is not very directly related to [our onshore business].”
The qualified foreign institutional investor (QFII) and the renminbi qualified foreign institutional investor (RQFII) schemes are inbound investment programmes that allow foreign investors to invest in onshore securities, within allowable quotas.
Fullerton in Singapore has quotas of RMB 1.2bn ($180m) under the RQFII and $250m under the QFII schemes, according to data from the State Administration of Foreign Exchange.
The firm is now in talks with other distributors, including banks and securities firms, Li said, but declined to name them, noting that the firm will be sharing more details in due course.
Competition in the PFM space can be intense for foreign players, as there are around 24,361 private fund managers managing 75,248 PFM products with RMB 12.79trn in assets, according to data from the Asset Management Association of China (Amac). Of the total, there are only around 15 foreign PFM players.
“I don’t feel the competition against the other WFOEs – we are too small in [such a huge] market. But the competition comes mainly from the local PFMs because [the WFOEs] are fighting for the same distributors,” Li said.
As of June last year, only four out of 10 foreign PFMs were able to raise assets of at least RMB 100m . Li said that the firm has not yet breached the RMB 100m mark, but did not give exact numbers.
The investment advisory licence
In addition to its PFM licence, Fullerton’s WFOE also obtained in April an onshore investment advisory licence in China, which enables foreign firms to advise onshore clients on their investment holdings or portfolio.
Only Fullerton and Neuberger Berman have so far obtained this licence.
Li explained that it will enable the firm to do more business in China, given that having a PFM licence has some limitations. For example, although private funds in China have no AUM limits, the number of investors is limited to 200.
“Without the investment advisory licence, we can only manage a private fund and distribute it through a distributor,” he added.
“With the new licence, we can advise institutional clients,” he said, adding that the firm has already started discussions with potential clients for advisory services.
Regulatory developments
Separately, Li is also positive on a number of regulatory developments in China.
For example, he said that the regulator’s plan to revise and combine the RQFII and QFII schemes can help foreign PFMs seed their own private funds via their own QFII/RQFII quotas.
Currently, the two inbound programmes do not allow foreign investors to invest in private funds. However, with the unified scheme, foreign investors will be able to invest in private funds.
“Foreign PFMs could be seeded by their own QFII/RQFII quotas,” Melody Yang, Beijing-based partner at law firm Simmons & Simmons, said in a previous interview with FSA. “PFMs are under pressure for a fund to reach a certain size in order to implement their investment strategies and maintain the operations of the PFMs.”
Fullerton’s Li also said that the move by the Chinese regulators last year to allow domestic banks to set up wealth management subsidiaries is an opportunity for foreign players.
Like banks, these wealth management subsidiaries can manage wealth management products (WMPs), which invest in products issued by trust companies, securities firms and subsidiaries of fund houses, and funnel the proceeds into loans for corporations. However, unlike bank-run WMPs, the new WMPs will have no minimum investment. They can also directly invest in stocks and can be distributed through channels other than banks.
WMPs may rival PFM funds, because both products are under the “private category”.
As of the end of last year, 16 banks announced plans to set up WMP subsidiaries, with the Industrial and Commercial Bank of China (ICBC) injecting the most capital (RMB 16bn) to its subsidiary, according to a Cerulli Associates report.
Instead of competing directing against these WMPs, Li believes that there will be more collaboration between these subsidiaries and foreign PFMs.
“The wealth management subsidiaries need time to build out their investment capability. So at the moment, [I expect that] they will work with external managers.”
Miao Hui, senior analyst at Cerulli Associates, shares the same sentiment.
“Collaboration will be more than competition between banks and PFMs in the near future,” she said previously.
She explained that under the guidelines for WMP subsidiaries, PFMs are allowed to provide advisory services to WMPs, while WMPs that are only available to qualified investors can invest directly into private funds.
