China’s VStone to tap Europe, eyes mutual fund entry

Shanghai-based private securities manager VStone is set to launch its first China A-shares Ucits fund in Europe and is aiming to expand into China's mutual fund industry potentially via acquisition.

The active long-only firm will launch the fund jointly with Swiss alternatives manager Gottex Fund Management, and expects its debut at the end of this month or in early March.

The fund will target European institutional investors including family offices, insurers as well as private fund managers, while also selling to retail investors through third-party distributors.

Investments in A-shares will be made using the Rmb500 million ($80 million) renminbi qualified foreign institutional investors (RQFII) quota held by Gottex Penjing Asset Management, a Hong Kong-based subsidiary of Gottex. However, the investments will be handled by VStone’s investment team in Shanghai.

Chen Jiwu, president of VStone, said share purchases would be balanced in style and focus on blue-chip stocks with growth potential as most of his investors were long-term, conservative holders of assets.

He said VStone planned to start raising money in the US for a new fund in the second quarter, with a target of Rmb1 billion. It was not clear whether VStone would launch the fund with a US partner.

Following meetings in Europe with potential investors, Chen reflected that they had a strong desire for exposure to China but were concerned by the economic slowdown and problems in the property and banking sectors.

Separately he noted that VStone had won sub-advisory mandates from overseas institutions, reflecting a trend in the industry. “There is some demand for such mandates from foreign investors, but it is not extremely high demand. It is too soon to be very optimistic,” said Chen. “Most of them take a long time to do due diligence, usually two years.”

Chen pointed to foreign investor concern about risk controls at Chinese private securities managers, but said his firm had sought to bring its internal systems up to global standards over the past two years since its partnership with Gottex began.

VStone and Gottex established a joint venture - Gottex-VStone Asset Management - in Shanghai in 2013. Gottex has brought about improvements in VStone’s risk management and compliance controls since then. The JV will be responsible for the new Europe fund’s risk management.

VStone was established in 2008 and manages 30 investment products. It had AUM of Rmb10 billion, according to data provided by the firm, and is one of the top 20 private securities managers in China. Its investors include institutional, retail and high-net-worth individuals.

Chen said VStone planned to expand into the mutual fund business in China this year, and would not rule out making acquisitions or applying for a mutual fund licence.