China Re signs with Sophis, plans third-party asset management

Are there signs of a trend among Chinese asset managers and institutional investors towards using sophisticated technology for managing their assets?

Beijing-based China Re Asset Management Company (CRAMC) certainly feels this is a necessary step if it is to diversify its investment portfolio and ultimately attract third-party client assets.

The Rmb65 billion ($9.6 billion) institution has become the second mainland China organisation to implement portfolio-management software from French vendor Sophis, after an unnamed large government entity signed up last year.

CRAMC, the asset-management arm of state-owned China Reinsurance Group, this month commenced its implementation of Sophis Value, the vendor's flagship buy-side system, and is due to go live in January 2011.

China Re, the country's biggest reinsurer, is the first mainland insurance firm to adopt a fully integrated straight-through processing system, which offers a centralised platform overseeing all investment transactions, says Sophis.

The deal is part of CRAMC's plan to widen the scope of its business and diversify its asset and investment portfolios, both into other asset classes and third-party asset management, says CRAMC chief executive Dr Kou Riming. As a result, the firm is looking to improve its internal management, he adds.

Since it was set up in 2005, CRAMC has been focusing on the investment and management of the insurance assets of China Reinsurance and it has long-standing experience in renminbi-denominated equities and fixed-income assets, Kou tells AsianInvestor.

However, the firm has broadened its business to include foreign-exchange asset management and has invested in domestic institutional foreign-currency bonds, he says, adding that CRAMC's investment in H-shares has "gained a fair return".

Moreover, by the end of the year, CRAMC plans to seek to move beyond China Re assets to manage third-party investments. "When the time is right, CRAMC will apply for a licence to launch our own products to further grow our assets under management," says Kou.

And Kou does not rule out the possibility of a system upgrade to meet the firm's needs as its AUM grows.

Until now, CRAMC has been using local Chinese systems for asset management, covering front-to-back trading, risk management and valuation. "These systems were chosen for their high market share and sophistication," says Kou.

"As these local systems are influential in the market, their performance is relatively more reliable, as they can adapt swiftly to any change in market regulations and trading rules," he says. "Moreover, the cost of system upgrades and maintenance is relatively lower."

However, these systems are highly segmented with relatively weak data compatibility, so their management efficiency is low, says Kou.

CRAMC expects a more efficient decision-making supporting structure following the implementation of Sophis Value, as well as an enhanced system for portfolio, compliance and risk management, which will provide higher flexibility in data processing, accounting and reporting.

"Our eventual goal is to enhance our investment-management efficiency, investment returns and client-serving capability," says Kou.

Before deciding on Sophis Value, CRAMC considered sophisticated international STP systems that are widely implemented by institutional investors, particularly those with successful track records in China, such as Murex and Misys.

But there will presumably be challenges involved in the Sophis implementation, given that China Re is only the second mainland institution to install Value, and the first Chinese insurer to do so.

That is the case, confirms Corinne Grillet, Sophis's chief operating officer for Asia. For example, this is the first time the vendor has worked with a domestic Chinese technology provider, she says. To achieve connectivity to local systems, the French firm is linking up with Hundsun. The Chinese provider does use the international Fix messaging protocol, which makes things easier, says Grillet.

There is also a lot of reporting regulation to comply with, she adds. Still, having already carried out the implementation for the other Chinese institution last year -- which went live with Value in January -- Sophis is aware of much of what is required, she says.

Meanwhile, Sophis is discussing other deals in the region, adds Grillet, who expects to win another Value mandate this year, but she would not reveal any names.

Used by firms from global asset managers to start-up hedge funds, Value provides cross-asset coverage for the buy-side from equities and fixed income to all forms of derivatives, says Sophis. The system helps firms build decision support, manage portfolios and compliance, and generate portfolio accounting.

Sophis opened an office in Beijing in 2009 and is expanding its team of sales and consulting professionals to service its new clients in China. The firm also plans to open an office in Australia -- in either Brisbane or Sydney -- by the end of the year to add to its other five in the Asia-Pacific region (Hong Kong, Japan, Korea and Singapore, as well as Beijing).

China Re is 85.5%-owned by Central Huijin Investment Co, an investment arm of sovereign wealth fund China Investment Corporation (CIC), and 14.5%-owned by the Ministry of Finance. CIC took over supervision of China Re's management team from China Insurance Regulatory Commission last year.