Shanghai QDLP expanded to include domestic fund firms

Shanghai has expanded the qualified domestic limited partner (QDLP) scheme to domestic mutual fund companies, in a bid to diversify licenced holders and to create more competition for applications with other cities.

Shanghai-based China International Fund Management (CIFM), a joint venture between JP Morgan Asset Management and Shanghai International Trust and Investment, received the QDLP qualification from Shanghai Financial Service Office (FSO) last week.

It becomes the first domestic mutual fund company to be included in Shanghai’s cross-border alternatives investment scheme, with a quota of $100 billion, confirmed by two sources.  

“Shanghai office is considering to give QDLP qualification to mutual fund companies, it is a new move,” said Sandra Lu, a partner at Shanghai-based law firm Llinks.

The QDLP programme was designed to allow licenced foreign managers to raise RMB-denominated assets to invest in overseas alternatives. The Shanghai FSO would now like to have a more comprehensive approach since Shenzhen’s QDIE (qualified domestic investment enterprise) allows both foreign and domestic managers to apply, said a source who is familiar with the matter.

“In CIFM’s case, its foreign shareholder, JP Morgan, has followed this development and plans to apply through the JV entity,” the source said.  

“CIFM can use this QDLP qualification and quotas to further expand its QDII (qualified domestic institutional investor) business by investing in overseas alternative assets,” said a Shanghai-based lawyer who preferred to be anonymous. “Shanghai want to attract more mutual fund companies to apply for QDLP."  

However, only CIFM has applied for the licence so far in Shanghai. This might be because the newly expanded scheme is yet to be fully rolled out. Equally there will only be a few managers capable of exploiting the opportunity.

“JP Morgan AM will have capability in alternative products and hedge funds overseas; but not all mainland mutual fund companies have a foreign shareholder who can perform as product provider,” the anonymous lawyer added.

CIFM has built a team responsible in analysing hedge funds and alternative assets, and it plans to invest in overseas by fund of fund (FoF) or feeder fund structure. The firm is preparing its first QDLP product which will invest in one overseas hedge fund with global multi-asset exposure. The firm has not yet confirmed the launch date but said it will happen in this year.  

Shanghai’s QDLP was first given the green light with six global hedge fund managers in 2013. It was then expanded to another five foreign managers who specialise in alternatives such as real estate and private equity in March this year.

In May, Natasha Xie, a partner at Beijing-based law firm Junhe, said both Shanghai and Shenzhen have different positioning in these schemes. She noted Shanghai’s QDLP tends to approve large firms, along the city’s goal in building a global financial centre; while Shenzhen’s QDIE tend to be flexible and to facilitate cross-border flows in Qianhai.