GF International sets out MRF, London office plans

Hong Kong-based fund house GF International Investment Management expects to be able to distribute its mainland funds under mutual recognition (MRF) within months.

And while more than a dozen southbound funds are expected to hit the market, GF International’s Hong Kong chief has few concerns about competition in the city.

GF International has also outlined plans to set up an office in London, which it sees as the hub of global emerging market investors.

Nathan Lin, CEO of GF International, the Hong Kong subsidiary of GF Fund Management, said his firm’s parent company had submitted two applications for southbound mainland equity funds to the Securities and Futures Commission (SFC). GF International will act as its parent company’s agent.

The Guangzhou-based parent is the mainland’s eighth-largest fund company in terms of mutual fund assets, and has a total of 28 funds eligible for the cross-border fund passporting scheme.

“If the funds are being approved in September, we expect 10-11 Hong Kong banks will be ready for distribution,” said Lin. The firm started its MRF preparations a year ago by approaching banks and distributors to decide the product range, but Lin said he thought that some of his peers were hesitating in taking the plunge due to concerns over potential costs and benefits.

“But we see some peers’ funds [in Hong Kong] can grow their assets significantly, that’s why we believe the market provides [fundraising] potential,” he said. The MRF scheme is also an important part of China’s capital market liberalisation, he added.

While the SFC is approving mainland funds for sale in the city, a new wave of China equity strategies is expected to reach distributors’ product shelves soon. The regulator said a total of 14 funds from eight firms applied in the first three days after the scheme went live on July 1, but at least two more Chinese firms have said they have also submitted applications over the past week.

There was intensified competition among the first batch of RQFII (renminbi qualified foreign institutional investor) funds - 19 retail funds and two private products from 21 managers – when the scheme launched in the first quarter of 2012. Latecomers like GF International found distributors' interest in such products had declined when they launched the products a year later.

Lin expects mutual recognition fund competition to be lower than that seen over RQFII products. “Unlike RQFII funds, which were totally new at that time, most southbound funds provide a performance track record, so it will be easier to pitch and convince distributors,” he said.

Lin said the firm's Hong Kong platform could become a distribution agent for other mainland firms, and it is in discussions with two Shanghai-based fund houses over potential partnerships. “They have eligible funds [for southbound] but not a plan to set up a Hong Kong platform for the mutual recognition scheme,” he said.

Lin stressed GF International would need to perform due diligence on the mainland managers, and ensure the funds did not overlap with its own products in Hong Kong.

For northbound funds, GF International's parent company is a potential distribution agent for global managers who do not have a joint venture partnership in mainland China.

After an overseas listing of a bond exchange-traded fund in partnership with Global X Funds in New York in November last year, GF International has applied to UK regulator the Financial Conduct Authority to set up a London office.

Lin said the firm’s plans for London and New York were different in terms of product offerings and business expansion. “London is the hub of global emerging market investors, but we like the US ETF market as it is more mature,” he said.