China Construction Bank’s Hong Kong fund house seeks growth

CCBI Asset Management’s medium-term goal is to develop a funds business in Hong Kong comparable in size to that of Bank of China International’s, but fast growth may need to wait until it has developed a three-year investment track record, says investment director Samson Rattiwat.

CCBI-AM is a unit of China Construction Bank International in Hong Kong, which has three businesses: pre-IPO investing, underwriting and investing in public securities.

This last area is Rattiwat’s remit and has been active for nearly three years. He joined at the start of this period, having previously managed money at Taifook Asset Management in Hong Kong.

CCBI-AM launched its first mutual fund, a Hong Kong-domiciled strategy, at the start of 2009, with partial seeding from CCBI and from a mainland-based institutional investor. The fund is still small, at HK$500 million ($64 million), but has been growing steadily, even during the period around the global financial crisis.

(There is no relationship between CCBI-AM and China Construction Bank’s mainland fund joint venture with Principal Global Investors.)

Most of the investor base is retail, sourced through CCBI’s Hong Kong bank branches. Rattiwat says the asset manager is keen to develop institutional clients in Hong Kong and wholesale relationships with financial institutions around the region. The firm is already in discussions with potential partners in Japan and Malaysia, and with Taiwanese groups operating in Hong Kong.

Hong Kong’s small population and the entrenchment of many major global fund houses makes it a difficult place to source new assets, Rattiwat says. CCBI’s local branch network is small compared to Bank of China International’s, for example.

But as a mainland-affiliated company, CCBI has some avenues of growth. One is to cater to wealthy individuals who, under a Hong Kong government scheme, can obtain permanent residency if they invest a minimum of several million dollars into Hong Kong stocks or real estate. Often these are mainland Chinese operating under a foreign passport, or overseas Chinese.

Another area that once looked promising – the qualified domestic institutional investor (QDII) scheme – is on hold. After the battering suffered by programmes under China’s QDII regime during the market falls of 2008, banks have no appetite for creating new QDII vehicles for their customers.

The other means of development is doing it the old-fashioned way: by providing performance in a sought-after asset class. CCBI’s inaugural product, the China Policy Driven Fund, invests in overseas-listed companies with a mainland pedigree.

It does so through the prism of Chinese domestic policy. Government decisions tend to drive the ups and downs of A-shares. Increasingly, Beijing’s moves also tend to affect the Hong Kong stock market, which is decoupling from that of the United States.

Within that approach, Rattiwat and his team then look at sectors and company picks, with a view to find under-researched companies, including small and mid-sized ones. To rely simply on blue chips would erode the team’s ability to beat the major indices, he says. Last year, the policy theme was infrastructure; today, it is Chinese domestic demand.

Nonetheless, with only 18 months of track record, CCBI-AM understands it is too soon for it to demonstrate its skills. For it to truly attract institutional business, it needs to build a three-year track record.

Rattiwat says the business has been profitable since its first year, and so long as it keeps its P&L in the black, it can afford to be patient and grow its business organically.