Fidelity establishes WFOE in Shanghai FTZ
Fidelity Worldwide Investments has set up shop in Shanghai's free trade zone to help provide domestic services to its institutional clients in China, where next year it hopes to sell its first Hong Kong fund.
Having established a wholly foreign-owned enterprise, or WFOE, in the Shanghai FTZ in September, the global funds firm said it is now awaiting regulatory clearance from the Chinese authorities to operate as a private fund company.
“A WFOE provides us with the possibility of being able to offer domestic investment capabilities to China based institutional clients, should regulators approve this in the future," said Mark Talbot, Fidelity’s managing director for Asia-Pacific ex-Japan.
In addition, Fidelity is planning to sell its first Hong Kong fund in China under the mutual recognition of funds scheme introduced by the China Securities Regulatory Commission and Hong Kong Securities and Futures Commission in July.
The company is looking to introduce the product in China in early 2016 and is currently working through the most appropriate distribution model, Talbot said.
Fidelity currently helps foreign investors to invest in onshore Chinese bonds and equities through its $1.2 billion Qualified Foreign Institutional Investor, or QFII, programme. It was the first foreign asset manager to acquire a QFII quota of more than $1 billion in March.
Fidelity has two representative offices in Beijing and Shanghai, plus a 350-strong IT supporting and back office in Dalian.
A relaxation of WFOE rules was announced by the Chinese authorities during the last annual round Sino-US talks in June, which will enable international firms' WFOEs to access China's onshore secondary capital market and operate there as private fund managers.
The scope of a foreign asset manager’s WFOE was previously restricted, in the main, to just investment consulting but now WFOEs will also be allowed to manage money and invest domestically like other private fund managers.
Foreign asset managers have been lining up to explore the possibility of accessing the Chinese market through the WFOE regime. For example, BNP Paribas Investment Partners established its Shanghai WFOE in December last year to target institutions like insurance companies. US-based firms like Franklin Templeton and Principal also plan to set up WFOEs.
Setting up a WFOE is easy but to operate as an onshore private manager a firm must first get clearance from the CSRC and also register as a private manager with the Asset Management Association of China.
UK fund house Aberdeen Asset Management is the first one planning to do so. It also set up its WFOE in Shanghai FTZ in September and is awaiting regulatory approval to operate as a private fund company.
But Aberdeen is something of an exception so far and many industry participants, including Fidelity, are awaiting clarification of the implementation rules and further details on the application procedure.
WFOE is also not a one-size-fits-all solution, said one industry consultant in Shanghai familiar with the process, who noted some variations in the way different foreign fund houses were planning to access the mainland Chinese market.
“More overseas fund managers are looking for setting up WFOEs after the Sino-US talks but some see late-comer advantages in this issue as they can plan the establishment properly and clearly until the rules become clear,” the consultant said.