UBS, Goldman seek entry to China asset management via broking
By Jame DiBiasio | 1 September 2009
UBS Global Asset Management and Goldman Sachs are exploring whether they can participate in ‘collective investment management’ schemes in China.
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UBS Global Asset Management is working on ways to manage assets in China -- but not by setting up a mutual fund joint venture.
It and a few other foreign financial institutions are exploring to what extent they can participate in the young industry for 'collective investment management' schemes, or CIM.
CIM is the up-and-coming industry for local securities companies to manage client assets. The first ones appeared in 2006, and there are now 28 local brokerages operating around 70 CIM platforms, with a total AUM of $16 billion.
The mutual funds industry, by comparison, is 11 years old, involves over 60 players (half of which are Sino-foreign JVs) managing over 500 funds worth around $350 billion.
While mutual funds are both closed- and open-ended, the CIMs launched to date are all closed-end, with a typical maturity of three-to-five years (the CSRC is expected to allow some to be launched with no maturity date). They are designed for wealthier clients able to take risk, with bigger minimum investment sizes (Rmb100,000 for equities or Rmb50,000 for bonds, which is 1,000 times more than a mutual fund's minimum) and no advertising allowed; these are placed privately.
Some people in the mutual funds industry criticise the government's decision to encourage brokers to sell CIMs. The funds industry is the most tightly regulated in China (and profitable), whereas CIMs are more of a free-for-all. Today, CIMs' investment strategies aren't much different from those of funds, but in theory they are more flexible.
More importantly is how they are structured: CIMs can charge performance fees, something that mutual fund houses have long pined for but which the CSRC has refused to grant. The argument goes, therefore, that CIMs' investments are better aligned with client goals. CIMs are meant to provide for a more absolute-return style of investing, although their track record is too short to offer a meaningful comparison to funds.
CIMs also make the playing field for investment products more bumpy, less level, at a time when such differences have been blamed for allowing structured products to be mis-sold. Both mutual funds and CIMs are regulated by the China Securities Regulatory Commission -- but in different departments, with their own agendas.
Beijing, however, seems keen to let brokers manage assets in order to help the industry, which is generally state-owned and unprofitable.
To date, no foreign-invested securities firm has been approved to launch a CIM. However, UBS and Goldman are looking at how they can participate.
Right now, CIMs do not have approval to invest overseas (with one exception), but they are expected to be given rules as qualified domestic institutional investors. Once that occurs, they will be able to provide a broader range of strategies than mutual fund companies, such as real-estate investment trusts, private equity, infrastructure -- even art and wine, if the CSRC allowed it.
The exception is China International Capital Corp, in which Morgan Stanley is a passive minority investor, but its QDII product was launched amid the worst of the financial turmoil, so it's not seen as a bellwether. Morgan Stanley Investment Managers also has a stake in a local funds JV.
UBS Global Asset Management says it is exploring how it can bid to provide advice to a CIM QDII product if UBS Securities China is granted permission to enter the business. Brokers must first be granted approval to set up an asset management division, and, among other requirements, operate it for a year before they can participate in the QDII market.
UBS Securities China began operations in 2006 and is a distinct company separate from UBS Securities, which is a shareholder. UBS already has a minority stake in a mutual-funds JV with State Development Investment Corporation, called UBS SDIC Management Fund Company, which was established in 2005.
Goldman Sachs also says it is exploring ways to participate in this market. It has a relationship -- but no ownership stake -- with Gao Hua Securities. Goldman lent money to its former partner Fang Fenglei to established Gao Hua, and the two have an investment banking JV in China. Gao Hua Securities is considering applying for an asset management license, and if this is granted, and Gao Hua gets into the CIM business, then Goldman Sachs Asset Management could be tapped as an international advisor. GSAM also manages a QFII portfolio.
Credit Suisse has a joint venture with Founder Securities to underwrite securities, and Deutsche Bank has a similar structure with Zhong De Securities. But neither JV is licensed as a brokerage. CS retains a role in a funds joint venture with ICBC, while Deutsche owns 30% of Harvest Fund Management.
© Haymarket Media Limited. All rights reserved.
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Tuesday, September 1, 2009
Thursday, August 27, 2009
Pictet FOFs - Expanding in Asia
Pictet Asset Management markets funds of hedge funds
By Jame DiBiasio | 27 August 2009
The firm is better known in Asia as a traditional fund house but is targeting institutional investors and private banks with a platform for hedge funds.
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Pictet Asset Management has assembled a three-person team based out of Geneva to promote its fund of hedge funds, a marketing effort that has now been extended to Asian and Australian institutional investors.
The move is an expansion for the firm, which in Asia is known as a traditional, long-only provider.
Steve Huguenin-Virchaux, alternative product specialist at Pictet, says the timing is based on the firm's recent track record. Pictet has managed hedge funds since the 1980s and created its fund of hedge funds in 1994. Its business is mid-sized, with about $3.5 billion in funds and another $3 billion or so in segregated mandates or advisory businesses.
Last year Pictet's fund of funds maintained full liquidity, as the underlying strategies allowed this. Pictet did suffer redemptions (at its peak its total hedge-fund invested assets was around $10 billion) and losses (-15% for 2008) but these were in line or slightly better than the industry average, and there was no gating of assets.
Year-to-date for 2009 the fund of hedge funds is up about 10%.
The majority of clients for the alternative business are French and Swiss, and mostly private banks. Pictet is keen to balance the business both by targeting institutional investors as well as promoting funds of funds in Asia.
"We want to be seen as a wealth manager, not a fund manager," says Amy Cho, managing director in Hong Kong. Her business-development team will focus on clients in Australia and Hong Kong first for the alternative product side.
© Haymarket Media Limited. All rights reserved
By Jame DiBiasio | 27 August 2009
The firm is better known in Asia as a traditional fund house but is targeting institutional investors and private banks with a platform for hedge funds.
advertisement
Pictet Asset Management has assembled a three-person team based out of Geneva to promote its fund of hedge funds, a marketing effort that has now been extended to Asian and Australian institutional investors.
The move is an expansion for the firm, which in Asia is known as a traditional, long-only provider.
Steve Huguenin-Virchaux, alternative product specialist at Pictet, says the timing is based on the firm's recent track record. Pictet has managed hedge funds since the 1980s and created its fund of hedge funds in 1994. Its business is mid-sized, with about $3.5 billion in funds and another $3 billion or so in segregated mandates or advisory businesses.
Last year Pictet's fund of funds maintained full liquidity, as the underlying strategies allowed this. Pictet did suffer redemptions (at its peak its total hedge-fund invested assets was around $10 billion) and losses (-15% for 2008) but these were in line or slightly better than the industry average, and there was no gating of assets.
Year-to-date for 2009 the fund of hedge funds is up about 10%.
The majority of clients for the alternative business are French and Swiss, and mostly private banks. Pictet is keen to balance the business both by targeting institutional investors as well as promoting funds of funds in Asia.
"We want to be seen as a wealth manager, not a fund manager," says Amy Cho, managing director in Hong Kong. Her business-development team will focus on clients in Australia and Hong Kong first for the alternative product side.
© Haymarket Media Limited. All rights reserved
Hedge fund of funds' assets fall by $200bn
August 25, 2009
Hedge fund of funds' assets fall by $200bn
By Louise Armitstead, Telegraph.co.uk, August 24, 2009
Investors pulled an estimated $200bn (£122bn) from the hedge fund of funds sector from September 2008 to June this year, representing a 30pc drop in assets.
While many individual hedge funds have seen inflows recover in the first half of this year, a study of the top 50 hedge fund of funds in the world found that all except two players have seen significant falls in assets since September 2008 which had not been recovered by June.
The research, by The Hedge Fund Journal and Newedge Prime Brokerage, found that assets in the sector were $530bn at the end of June, down from a peak of $825bn. The industry magazine said the figures revealed a "transformational crisis" that had "come as a shock" to a sector that had grown at a rate of more than 20pc a year between 2000 and 2008.
While the survey found that "most funds" had lost an average of between 25pc and 30pc of their assets, some had lost far more. Many of the biggest losers were the operations within investment banks. HSBC's Alternative Investments division shrank 51.9pc, from $46.3bn to $22.3bn; UBS's Alternative and Quantitative Investments fell 32.6pc, from $46.6bn to $31.4bn; and Goldman Sachs Hedge fund strategies was down 24.7pc, from $23.9bn to $18bn.
The biggest specialist managers also suffered heavy redemptions: Permal Asset Management dropped 48.9pc, from $36.6bn to $18.7bn, and Man Investments fell 46.4pc, from $42.9bn to $23bn. All of these remain top-10 players in the world.
The only two hedge fund of funds that saw inflows were Blackstone, which grew its operations 25pc, from $20bn to $25bn, and Grovesnor Capital Management, up 1pc from $20bn to $21bn. The hedge fund sector as a whole suffered last year as a combination of the market turmoil and high levels of gearing resulted in its worst performance for a decade. In addition, a sudden aversion to risk and a need for liquidity led to a scramble by investors to withdraw money, causing some funds to collapse.
Hedge fund of funds have been hit twice by redemptions both directly and in the funds they invest in. Chicago-based Hedge Fund Research (HFR) has reported that more than 200 funds of hedge funds liquidated in 2009, nearly twice the number of those that closed in the fourth quarter of 2008. However, in recent months some have reported a steady return of inflows, particularly in funds of funds that have restructured and reduced management fees.
Hedge fund of funds' assets fall by $200bn
By Louise Armitstead, Telegraph.co.uk, August 24, 2009
Investors pulled an estimated $200bn (£122bn) from the hedge fund of funds sector from September 2008 to June this year, representing a 30pc drop in assets.
While many individual hedge funds have seen inflows recover in the first half of this year, a study of the top 50 hedge fund of funds in the world found that all except two players have seen significant falls in assets since September 2008 which had not been recovered by June.
The research, by The Hedge Fund Journal and Newedge Prime Brokerage, found that assets in the sector were $530bn at the end of June, down from a peak of $825bn. The industry magazine said the figures revealed a "transformational crisis" that had "come as a shock" to a sector that had grown at a rate of more than 20pc a year between 2000 and 2008.
While the survey found that "most funds" had lost an average of between 25pc and 30pc of their assets, some had lost far more. Many of the biggest losers were the operations within investment banks. HSBC's Alternative Investments division shrank 51.9pc, from $46.3bn to $22.3bn; UBS's Alternative and Quantitative Investments fell 32.6pc, from $46.6bn to $31.4bn; and Goldman Sachs Hedge fund strategies was down 24.7pc, from $23.9bn to $18bn.
The biggest specialist managers also suffered heavy redemptions: Permal Asset Management dropped 48.9pc, from $36.6bn to $18.7bn, and Man Investments fell 46.4pc, from $42.9bn to $23bn. All of these remain top-10 players in the world.
The only two hedge fund of funds that saw inflows were Blackstone, which grew its operations 25pc, from $20bn to $25bn, and Grovesnor Capital Management, up 1pc from $20bn to $21bn. The hedge fund sector as a whole suffered last year as a combination of the market turmoil and high levels of gearing resulted in its worst performance for a decade. In addition, a sudden aversion to risk and a need for liquidity led to a scramble by investors to withdraw money, causing some funds to collapse.
Hedge fund of funds have been hit twice by redemptions both directly and in the funds they invest in. Chicago-based Hedge Fund Research (HFR) has reported that more than 200 funds of hedge funds liquidated in 2009, nearly twice the number of those that closed in the fourth quarter of 2008. However, in recent months some have reported a steady return of inflows, particularly in funds of funds that have restructured and reduced management fees.
Monday, August 17, 2009
Viability Challenges to Funds of Hedge Funds, Cogency
Viability Challenges to Funds of Hedge Funds
Jeffrey Axelrod, CEO, Cogency
Aug 2009
In the wake of portfolio pressures coming from hedge funds with questionable prime brokers (Lehman, Bear), credit facilities and liquidity, combined with investor pressures arising from the Madoff scandal and the quest for quick cash, funds of hedge funds found themselves at the beginning of 2009 with portfolios spotted with quicksand and landmines, and a capital drain threatening with the force to swallow them.
The sandbags
As a first line of defense, all that a FOHF could do was to mimic what their HF investments were doing to them: dropping gates and suspending redemptions. But if they were going to regain investor trust and stand a chance of getting new money into the fund, they would need to be more creative.
The better dam
What many FOHFs did was to create a protected bucket within the fund, fill it with illiquid and questionable investments and with an equal proportion of investor capital. Within this bucket they could control investor redemptions, charge different fees (often none or reduced), change the high-water mark, and handle forced-redemptions when any money came in from the underlying investments. This allowed the remainder of the fund to continue business as usual – allowing redemptions, reporting good returns as the market improved, and even pulling in new money as the flow of liquid capital changed direction.
Engineering the solution
Words like special purpose vehicle, redemption in kind, side-pocket, and liquidating-trust all began to take on life outside the offering documents. The legal and accounting form of this solution for each firm took on a shape determined by the wording of the fund’s offering documents and the capabilities of their fund administrator’s accounting system.
There were many new transactions and concepts that needed to be tracked and reported on. The rebalancing transactions that create the new entity can take many forms and be quite complex, transferring liquidity terms, fees, high-water marks, and effective dates. There must be ongoing accounting of the illiquid entity. Portfolio redemptions into the illiquid bucket must be monitored, and distributed to investors according to the terms of the new legal structure. And the investor reporting requirements on the balance in their main and illiquid holdings (sometimes separate, sometimes merged) can be complex.
In cases where the fund administrators could not accommodate the structures and reporting that the fund required, they either provided workaround solutions in Excel spreadsheets, or worked with the fund to restructure the solution to fit the available tools.
Long term environmental impact
The FOHF environment is forever impacted by the events of the past 9 months. First off, FOHFs that have been successfully self-administered for years now feel the pressure from investors to have an outside fund administrator. Regardless of the actual value, the perceived value is undisputable.
Even with an administrator, FOHFs now need to show their investors solid accounting controls - tracking valuation direct from the HF managers and cross-checking the administrator numbers with internal shadow accounting systems. And even beyond direct knowledge of HF valuation, FOHFs need to show that they understand the content of the investment portfolio of their HF managers. This is leading toward greater usage of managed accounts which, besides providing transparency into the portfolio, also provide quicker liquidity, albeit at the cost of additional oversight.
Recovery prognosis
By May 2009, the FOHF year-to-date returns were some of the best in their long-term history. With time passing and lessons learned, the industry is adjusting and recovering. FOHFs are showing a stronger interest in manager due-diligence and shadow accounting, with more attention placed on showcasing internal controls to investors. On the investor front, there is cash sitting in the portfolio of pension funds, endowments, family offices, and high-net-worth individuals, soon to be looking for a better home than the mattress.
Jeffrey Axelrod, CEO, Cogency
Aug 2009
In the wake of portfolio pressures coming from hedge funds with questionable prime brokers (Lehman, Bear), credit facilities and liquidity, combined with investor pressures arising from the Madoff scandal and the quest for quick cash, funds of hedge funds found themselves at the beginning of 2009 with portfolios spotted with quicksand and landmines, and a capital drain threatening with the force to swallow them.
The sandbags
As a first line of defense, all that a FOHF could do was to mimic what their HF investments were doing to them: dropping gates and suspending redemptions. But if they were going to regain investor trust and stand a chance of getting new money into the fund, they would need to be more creative.
The better dam
What many FOHFs did was to create a protected bucket within the fund, fill it with illiquid and questionable investments and with an equal proportion of investor capital. Within this bucket they could control investor redemptions, charge different fees (often none or reduced), change the high-water mark, and handle forced-redemptions when any money came in from the underlying investments. This allowed the remainder of the fund to continue business as usual – allowing redemptions, reporting good returns as the market improved, and even pulling in new money as the flow of liquid capital changed direction.
Engineering the solution
Words like special purpose vehicle, redemption in kind, side-pocket, and liquidating-trust all began to take on life outside the offering documents. The legal and accounting form of this solution for each firm took on a shape determined by the wording of the fund’s offering documents and the capabilities of their fund administrator’s accounting system.
There were many new transactions and concepts that needed to be tracked and reported on. The rebalancing transactions that create the new entity can take many forms and be quite complex, transferring liquidity terms, fees, high-water marks, and effective dates. There must be ongoing accounting of the illiquid entity. Portfolio redemptions into the illiquid bucket must be monitored, and distributed to investors according to the terms of the new legal structure. And the investor reporting requirements on the balance in their main and illiquid holdings (sometimes separate, sometimes merged) can be complex.
In cases where the fund administrators could not accommodate the structures and reporting that the fund required, they either provided workaround solutions in Excel spreadsheets, or worked with the fund to restructure the solution to fit the available tools.
Long term environmental impact
The FOHF environment is forever impacted by the events of the past 9 months. First off, FOHFs that have been successfully self-administered for years now feel the pressure from investors to have an outside fund administrator. Regardless of the actual value, the perceived value is undisputable.
Even with an administrator, FOHFs now need to show their investors solid accounting controls - tracking valuation direct from the HF managers and cross-checking the administrator numbers with internal shadow accounting systems. And even beyond direct knowledge of HF valuation, FOHFs need to show that they understand the content of the investment portfolio of their HF managers. This is leading toward greater usage of managed accounts which, besides providing transparency into the portfolio, also provide quicker liquidity, albeit at the cost of additional oversight.
Recovery prognosis
By May 2009, the FOHF year-to-date returns were some of the best in their long-term history. With time passing and lessons learned, the industry is adjusting and recovering. FOHFs are showing a stronger interest in manager due-diligence and shadow accounting, with more attention placed on showcasing internal controls to investors. On the investor front, there is cash sitting in the portfolio of pension funds, endowments, family offices, and high-net-worth individuals, soon to be looking for a better home than the mattress.
Thursday, August 6, 2009
FOFs - Record Inflow in 2Q09
From Citywire: http://www.citywire.co.uk/professional/-/news/fund-news/content.aspx?ID=352626
Fund of funds post record inflows in Q2
By Drazen Jorgic | 14:54:17 | 05 August 2009
Investors poured a net record of £1.2 billion into fund of funds in the second quarter, while ethical funds registered their first outflows since Investment Management Association (IMA) records begun.
The £1.2 billion was a £100 million more than on the corresponding period of the previous year.
Most of the net sales were of funds that invest externally. The most popular sector in Q2 2009 was cautious managed, accounting for net inflows of £347.5 million, followed by Balanced Managed with a net inflow of £337.5 million.
Ethical funds suffered outflows of £18.4 million.
Overall, funds under management in the second quarter of the year, within the fund of funds space, totalled £32.5 billion, up 15% on Q1 but down 3% on the same quarter in 2008.
Tracker funds also saw a surge in popularity with investors looking for beta exposure on the rising markets. Sales of tracker funds had substantially surged, with net inflows of £258.9 million in Q2, in stark contrast to £31.6 million in outflows the previous quarter and £1.8 million outflows in the corresponding period in 2008.
IMA said gaining market exposure through trackers continued to be most popular with the IFA sector, with intermediaries accounting for 61% of all gross retail sales.
Jane Lowe, director of markets at the IMA, said: 'In line with overall net retail sales, funds of funds saw record net retail inflows in the second quarter. Although only a small proportion of total funds under management, ethical funds by contras, saw their first net outflow since records began in 1992.'
Fund of funds post record inflows in Q2
By Drazen Jorgic | 14:54:17 | 05 August 2009
Investors poured a net record of £1.2 billion into fund of funds in the second quarter, while ethical funds registered their first outflows since Investment Management Association (IMA) records begun.
The £1.2 billion was a £100 million more than on the corresponding period of the previous year.
Most of the net sales were of funds that invest externally. The most popular sector in Q2 2009 was cautious managed, accounting for net inflows of £347.5 million, followed by Balanced Managed with a net inflow of £337.5 million.
Ethical funds suffered outflows of £18.4 million.
Overall, funds under management in the second quarter of the year, within the fund of funds space, totalled £32.5 billion, up 15% on Q1 but down 3% on the same quarter in 2008.
Tracker funds also saw a surge in popularity with investors looking for beta exposure on the rising markets. Sales of tracker funds had substantially surged, with net inflows of £258.9 million in Q2, in stark contrast to £31.6 million in outflows the previous quarter and £1.8 million outflows in the corresponding period in 2008.
IMA said gaining market exposure through trackers continued to be most popular with the IFA sector, with intermediaries accounting for 61% of all gross retail sales.
Jane Lowe, director of markets at the IMA, said: 'In line with overall net retail sales, funds of funds saw record net retail inflows in the second quarter. Although only a small proportion of total funds under management, ethical funds by contras, saw their first net outflow since records began in 1992.'
Tuesday, August 4, 2009
Merrill's New Prime Brokerage / Cap Intro Person
Merrill Asia Prime Brokerage Hires CLSA Capital Intro. Expert
July 28, 2009
In recent years, the revolving door at Merrill Lynch’s Asia prime brokerage has been ushering people out. But the firm is replacing some of that lost talent with the hire of CLSA’s Joanne Bryant-Rubio.
Bryant-Rubio has joined Merrill’s capital introduction team in Hong Kong as vice president, Asian Investor reports.
At CLSA, Bryant-Rubio handled capital introduction and fundraising for Asia hedge funds from London. Before joining CLSA, she worked at Atlas Capital, a fund of hedge funds.
July 28, 2009
In recent years, the revolving door at Merrill Lynch’s Asia prime brokerage has been ushering people out. But the firm is replacing some of that lost talent with the hire of CLSA’s Joanne Bryant-Rubio.
Bryant-Rubio has joined Merrill’s capital introduction team in Hong Kong as vice president, Asian Investor reports.
At CLSA, Bryant-Rubio handled capital introduction and fundraising for Asia hedge funds from London. Before joining CLSA, she worked at Atlas Capital, a fund of hedge funds.
Tuesday, July 14, 2009
China to Revive QDII Fund Quotas
Safe expected to revive QDII fund quotas
By Liz Mak | 15 July 2009
China Universal and E-Fund may be the last to launch active QDII strategies, as a host of passive and ETF products line up at Safe's door.
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The QDII scene in China has been at a standstill ever since Schroders' China JV with the Bank of Communications launched its Bocom Schroders Global Selection Fund on August 22 last year. Three weeks later, Lehman Brothers collapsed, AIG was bailed out and Merrill Lynch was forced into a marriage with Bank of America.
Alarmed at the chaos, decision makers at the State Administration of Foreign Exchange (Safe) froze foreign-exchange quota approvals for fund managers, which had hoped to launch products under the qualified domestic institutional investor (QDII) programme.
There are now 20 fund houses in line for such approval. These are the fund houses that have received the blessing of the industry regulator, the China Securities Regulatory Commission, which is the penultimate step before winning Safe's quota.
It is now 10 months since the last QDII fund was given a quota, and the rumour mill about which company will be allowed to return to the market first is at full tilt. The betting in Shanghai is that QDII funds will be approved by September, although some observers reckon the first won't launch until November.
Atop the queue awaiting Safe's approval are Guangzhou's E-fund and Shanghai's China Universal. The two houses have already assembled their in-house investment teams. (E-fund opened its Hong Kong office in January this year. It now operates in IFC.)
E-fund is known to have signed up State Street Global Advisors as its partner to launch an Asian enhanced strategy product, while China Universal is backed by Capital International.
E-fund and China Universal are seen to be the last few players to pursue active global strategies, marking a transition phase from the first generation of QDII. A second generation of QDII is now brewing, as regulators and fund houses exhibit a strong preference for passive, indexed strategies for qualities such as transparency and liquidity.
Other firms also on Safe's waiting list include: Changsheng, China Merchants Fund (JV of ING), Lord Abbett, UBS SDIC, Fullgoal (JV of Bank of Montreal), Da Cheng, Bosera, Guotai, Penghua (JV of Eurizon), Invesco Great Wall, AIG Huatai, Everbright Pramerica, Citic Prudential, Franklin Templeton Sealand, Guangfa, BoC International (JV of BlackRock), and ABN Amro Teda (now a JV of BNP Paribas).
Among these, Changsheng is said to have already mandated Goldman Sachs as an advisor. Calyon is also said to have snatched a mandate from BNP Paribas to execute Guotai's QDII product, a passive offering indexed to Nasdaq 100. Meanwhile, the JVs will most likely develop products with their foreign shareholders.
Industry execs suggest Safe will be more comfortable giving out a new quota when the existing QDII funds recoup their losses and at least see their NAVs return to launch levels. After all, officials are still facing ongoing criticism for opening the floodgate for the first generation of QDII. (On top of which sits CIC's losses in foreign investments, to which the Safe is responsible for funding.) The agency is desperately trying to time the next batch of QDIIs well in order to avoid similar embarrassment.
Only two out of nine existing QDII funds are in positive territory -- Fortis Haitong China Overseas Best Selection Fund and Bocom Schroders Global Selection Fund. As at the end of June, the two were up by 50.09% and 33.80% respectively since launch. The seven other existing products delivered a -29.6% loss on average. These range from China International's -49.6%, Harvest's -41.4%, China Southern's -36.2% to ChinaAMC's - 30.9%, ICBC Credit Suisse's -26.4%, Yinhua's -17.8% and Fortune SGAM's -5.0%.
© Haymarket Media Limited. All rights reserved.
By Liz Mak | 15 July 2009
China Universal and E-Fund may be the last to launch active QDII strategies, as a host of passive and ETF products line up at Safe's door.
advertisement
The QDII scene in China has been at a standstill ever since Schroders' China JV with the Bank of Communications launched its Bocom Schroders Global Selection Fund on August 22 last year. Three weeks later, Lehman Brothers collapsed, AIG was bailed out and Merrill Lynch was forced into a marriage with Bank of America.
Alarmed at the chaos, decision makers at the State Administration of Foreign Exchange (Safe) froze foreign-exchange quota approvals for fund managers, which had hoped to launch products under the qualified domestic institutional investor (QDII) programme.
There are now 20 fund houses in line for such approval. These are the fund houses that have received the blessing of the industry regulator, the China Securities Regulatory Commission, which is the penultimate step before winning Safe's quota.
It is now 10 months since the last QDII fund was given a quota, and the rumour mill about which company will be allowed to return to the market first is at full tilt. The betting in Shanghai is that QDII funds will be approved by September, although some observers reckon the first won't launch until November.
Atop the queue awaiting Safe's approval are Guangzhou's E-fund and Shanghai's China Universal. The two houses have already assembled their in-house investment teams. (E-fund opened its Hong Kong office in January this year. It now operates in IFC.)
E-fund is known to have signed up State Street Global Advisors as its partner to launch an Asian enhanced strategy product, while China Universal is backed by Capital International.
E-fund and China Universal are seen to be the last few players to pursue active global strategies, marking a transition phase from the first generation of QDII. A second generation of QDII is now brewing, as regulators and fund houses exhibit a strong preference for passive, indexed strategies for qualities such as transparency and liquidity.
Other firms also on Safe's waiting list include: Changsheng, China Merchants Fund (JV of ING), Lord Abbett, UBS SDIC, Fullgoal (JV of Bank of Montreal), Da Cheng, Bosera, Guotai, Penghua (JV of Eurizon), Invesco Great Wall, AIG Huatai, Everbright Pramerica, Citic Prudential, Franklin Templeton Sealand, Guangfa, BoC International (JV of BlackRock), and ABN Amro Teda (now a JV of BNP Paribas).
Among these, Changsheng is said to have already mandated Goldman Sachs as an advisor. Calyon is also said to have snatched a mandate from BNP Paribas to execute Guotai's QDII product, a passive offering indexed to Nasdaq 100. Meanwhile, the JVs will most likely develop products with their foreign shareholders.
Industry execs suggest Safe will be more comfortable giving out a new quota when the existing QDII funds recoup their losses and at least see their NAVs return to launch levels. After all, officials are still facing ongoing criticism for opening the floodgate for the first generation of QDII. (On top of which sits CIC's losses in foreign investments, to which the Safe is responsible for funding.) The agency is desperately trying to time the next batch of QDIIs well in order to avoid similar embarrassment.
Only two out of nine existing QDII funds are in positive territory -- Fortis Haitong China Overseas Best Selection Fund and Bocom Schroders Global Selection Fund. As at the end of June, the two were up by 50.09% and 33.80% respectively since launch. The seven other existing products delivered a -29.6% loss on average. These range from China International's -49.6%, Harvest's -41.4%, China Southern's -36.2% to ChinaAMC's - 30.9%, ICBC Credit Suisse's -26.4%, Yinhua's -17.8% and Fortune SGAM's -5.0%.
© Haymarket Media Limited. All rights reserved.
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