Chinese firms seen mulling RQFII Ucits bond funds
Interest among Chinese asset managers in launching Ucits RQFII funds in Europe is increasing, said David Li, Hong Kong chief executive at French fund administrator CACEIS.
Such firms realise they must accelerate their product innovation because internationalisation of the renminbi means competition will increase as offshore centres develop, he added.
In April, Luxembourg’s regulator, the Commission de Surveillance du Secteur Financier (CSSF), permitted the launch of Ucits funds invested entirely in China’s interbank bond market, where some 95% of mainland bonds are traded.
The move opens up opportunities for mainland managers’ Hong Kong units. To date, the only Ucits products launched by such firms with their renminbi qualified foreign institutional investor (RQFII) quota have been exchange-traded funds.
Moreover, RQFII Ucits fixed income products could be attractive to European investors, because onshore yields in China are generally higher than in Europe.
Five-year German sovereign bonds were trading with a 0.37% yield yesterday, while five-year Chinese government bond yields were 3.88%.
“In Europe, knowledge about the Chinese onshore market is still limited,” he said. “Hence, we are very pleased to see that the CSSF has recently recognised the onshore bond market as a regulated market for Luxembourg Ucits products.”
Owned by Crédit Agricole and Natixis, CACEIS has been building up its presence in Hong Kong in anticipation that this year it will receive a trustee licence to service funds domiciled in the city. The firm is also considering applying for a Hong Kong banking licence to offer custody capabilities.
While the company does not believe that Hong Kong-domiciled funds will overturn the dominance of Ucits funds right away, it wants to have this capability in place to meet potential demand, said Li.
Meanwhile, ahead of the expected launch of the HK-China mutual recognition agreement (MRA), more international managers are eyeing registering funds in Hong Kong with a view to distribution in China, he added. Under the proposed scheme, funds domiciled in Hong Kong could be distributed to investors in China and vice versa.
CACEIS started operations in Hong Kong in 2009 with a six-person team, which has grown to 31 under Li, who joined in 2011. As of the end of last year, its total alternative assets under administration stood at $83 billion, of which Asia accounted for $80 million, according to data provider eVestment. The Hong Kong office also covers Taiwan, South Korea and Singapore.