CIFM's Ho tips mutual recognition for second half

The Hong Kong head of China's CIFM Asset Management expects mutual fund recognition to launch in the second half of this year, despite some predicting an earlier start.

Anthony Ho, chief executive of CIFM (HK), told AsianInvestor the scheme faced many challenges in implementation, mainly because of differences between rules and systems in Hong Kong and China.

Meanwhile, CIFM (HK), a joint venture of JP Morgan Asset Management and Shanghai International Trust, plans to use and will also start distributing products in Asian markets beyond China this year, he noted.

Officials have been publicly making more encouraging noises about the scheme’s prospects in recent weeks, with regulators on both sides of the border talking about it publicly.

Xiao Gang, chairman of the China Securities Regulatory Commission, said last week that the CSRC was planning for mutual recognition following the launch of Stock Connect last November. Also last week, Carlson Tong, chairman of Hong Kong’s Securities and Futures Commission (SFC), said the scheme would be launched this year.

Some have suggested mutual recognition would launch by March 31, as that is when Alexa Lam, deputy chief executive of the SFC and a key architext of the scheme, is expected to retire.

But there remain obstacles. Ho said most of the focus of preparatory work for mutual recognition was on operations because of the difference between trading rules in Hong Kong and China. It involved discussions over changes to operational infrastructure and logistics, he added.

Eddie Chang, chief executive of CIFM in Shanghai, added that differences in regulations, fund accounts and operational systems were "great challenges".

He pointed out for example that fund houses' practice of charging redemption fees differs in Hong Kong and China. These differences would present technical obstacle for firms on both sides of the border.

The difference in trading times in Hong Kong and Shanghai will be another operational difficulty, noted Zhang.  

Nonetheless, Ho saw mutual recognition as potentially a great source of new business for CIFM (HK). The firm will distribute its parent’s products in Hong Kong, and it is in talks with JP Morgan AM over making use of the US firm's significant distribution network in the city.

Under mutual recognition, Chang said he expected to introduce funds focused on small to mid-sized companies, growth enterprises and sectors not available in Hong Kong’s market.

He noted that foreign investors were able to access the onshore mainland Chinese market via schemes such as RQFII, QFII and Stock Connect, but that most were following broad index instruments, such as China equity RQFII ETFs.

Beyond China, CIFM (HK) is gearing up for a push into Asia. Ho said the firm will start distributing products in Singapore, Taiwan and South Korea, initially  through segregated account business. The firm is also seeking sub-advisory business for RQFII holders in cities around the world that are part of the scheme.

CIFM (HK) launched a RMB China A-Shares fund under its Rmb800 million RQFII quota on Monday this week. The new fund will be managed by Judy Chang, CIFM (HK)’s chief investment officer, who will be supported by two senior portfolio managers in Hong Kong.

CIFM managed Rmb104 billion as of the end of 2014.