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Partners cite advantage in yuan trading
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HONG Kong-based hedge fund platform Persistent Asset Management Co has linked up with Guangzhou-based GF Asset Management Co to become the first Sino-foreign joint venture to receive a license to raise yuan on China’s mainland.
The approval, given on September 30, taps into a pilot program in the Shanghai Free Trade Zone and is another step in the development of cross-border investment in China.
The joint venture, called GF-Persistent Overseas Investment Fund Management (Shanghai) Co, is taking advantage of the new Qualified Domestic Limited Partnership, or QDLP program, according to the company.
The other 15 participants in the partnership program are not joint ventures. GF-Persistent officials said they believe their structure give the company an investment advantage.
“We are able to combine the advantages of both sides: a strong understanding of local investment needs and the experience of investment professionals who know the global market.” Wu Yupeng, the general manager of venture, said in a media briefing.
The regulatory approval gives the venture a quota of US$100 million as its initial investment. Its targets include international funds and private equity. It will launch its first product as early as next month, with a threshold of 5 million yuan (US$786,843), the company said.
The pilot program in the Free Trade Zone allows international hedge funds to raise capital in China’s local currency for overseas investments, a testing ground for the government’s experiment with capital account convertibility. It’s also another step in Shanghai’s plans to build itself into an international financial center.
Billionaire Ken Griffin’s Citadel LLC, Man Group, Oak Tree, Black Rock, JPMorgan and UBS Global Asset Management are among the wholly owned hedge funds that have been approved for the new program.
“It is an effective new initiative that allows asset management firms to help domestic professional investors access more asset classes overseas,” said Ling Xinyuan, managing director and chairman of China at UBS Global Asset Management. The startup process has been slower than expected, some market watchers have said, and it’s too early to judge success.
“It has taken quite a long time for the hedge funds to raise sufficient funds, which was unexpected,” said Kenny Lam, partner of the China tax management group at PwC in Shanghai.
That means most participants haven’t yet tapped the full investment quotas they were given.
“Part of the reason would be the 5 million yuan threshold,” Lam said, “And the hedge funds’ marketing efforts, either through sending Hong Kong-based marketing teams to the mainland or through hiring Chinese banks to help promote their products, are not very cost effective.”
Yu Quan, head of research at Persistent, said she thinks the situation would be greatly improved by the creation of joint ventures.
“Lack of fundraising means lack of reputation,” Yu said. “We will have overseas experts taking care of overseas assets, while mainland experts will tend to local investors’ needs. The tie-up between GF and Persistence should shorten the learning curve for both sides and provide tangible benefits for Chinese investors.”
The QDLP program is part of China’s push to open its capital account wider to outside investors.
That was helped by the launch of the Qualified Domestic Investment Enterprise program in February, which enables eight mainland asset managers registered in the southern city of Shenzhen to invest in overseas instruments.
“We see more participants coming in under both programs,” Wu said. “It’s very easy to see that QDLP will expand beyond the current 15 participants.”
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