UBS AM readies its first QDLP funds

UBS Asset Management plans to launch three to four private funds under China’s qualified domestic limited partner (QDLP) scheme by the end of the year to target mainland institutional and wealthy clients.

China chairman Ling Xinyuan told AsianInvestor that the products would invest in overseas funds of hedge funds, private equity funds, real estate funds and traditional mutual funds.

UBS AM set up its wholly foreign owned enterprise (WFOE), UBS Global Asset Management (Shanghai), in the Shanghai free trade zone in September, after securing its licence and $100 million of quota in February. The firm will apply for the second batch of quotas once the initial $100 million is used up, said Ling.

That said, UBS AM can potentially raise more from its upcoming products, as the Shanghai Financial Service Office (FSO) offers some flexibility in quotas, depending on the amount of funds raised. For instance, US private equity firm Oaktree Capital Management’s first QDLP fund raised Rmb1 billion ($158 million), treble its initial quota of $50 million.

The scheme allows managers to launch products through which they raise money from Chinese institutions and high-net-worth-individuals (HNWIs) for investment in their existing offshore funds.

The scope of QDLP has expanded this year from single hedge funds to include other alternatives and traditional mutual funds this year. Ling said this expansion and QDLP’s greater flexibility in general have given UBS AM more confidence and allowed more product choice for domestic investors.

Chinese investors are increasingly looking for opportunities overseas in light of factors such as interest rate cuts, renminbi devaluation, A-share volatility and the limited quota available via the qualified domestic institution investor (QDII) scheme.

“Over the past 12-18 months, we have seen increased interest from [Chinese] high-net-worth, mass-affluent and institutional investors in getting offshore exposure,” noted Stephen Baron, deputy director of strategic solutions at Shanghai-based Z-Ben Advisors. “Equity market volatility is certainly playing a role, but increased investor sophistication is also a key contributing factor.”

UBS Global AM (Shanghai) is the firm’s second WFOE in China. Its Beijing-based WFOE, UBS Global Asset Management (China), was the first WFOE to register with the Asset Management Association of China as a private fund manager.

In total, 15 foreign fund houses have received QDLP licences. The first batch, issued in 2013, went to Canyon Partners, Citadel Group, Man Group, Oaktree Capital, Och-Ziff and Winton Capital.

The second batch was handed out in February to CBRE Global Investors, Deutsche Asset & Wealth Management, EJF Capital and Nomura Asset Management, as well as UBS Asset Management.

During the second half of 2015, licences have been awarded to BlackRock, China International Fund Management, GF-Persistent Overseas Investment Fund Management and Value Partners.

UK-based Aberdeen Asset Management, which has set up a WFOE, has also applied for QDLP status, AsianInvestor understands.