E Fund delays London office, awaits mandates

The Chinese firm is postponing its UK plans due to Brexit-related uncertainty and lower foreign demand for RMB assets. Still, it expects mandates from European investors to start flowing soon.
E Fund delays London office, awaits mandates

Guangzhou-based E Fund Management is delaying opening its London office as a result both of reduced interest in Chinese investments due to renminbi depreciation, and of uncertainty caused by Britain’s vote to leave the EU. 

However, Ma Jun, executive vice president and chief investment officer for fixed income, expects these to be short-term issues and said the firm still planned to set up the UK presence in the next 12 months. News of its plan to set up a branch in Europe – most likely London – had emerged in mid-2014. The fund house, one of China's biggest, with Rmb960 billion ($150 billion) in AUM, has already set up a New York office, in April last year.

Ma told AsianInvestor foreign investor interest in RMB-denominated assets had declined as the currency weakened against the dollar from last August. This has made it more challenging for Chinese managers to launch new products overseas, he noted, but the currency factor is not a major long-term concern for these institutions.

Foreign asset owners will boost their Chinese exposure by handing out mandates over the coming two years as their concerns over RMB weakness subside, as many of them have completed their due diligence on E Fund, said Ma.

He pointed to E Fund’s partnerships with two pension fund managers – Netherlands-based APG Asset Management and Denmark’s Danske Capital – which he said would result in investment mandates.

RMB concerns

China’s State Administration of Foreign Exchange (Safe) adopted a new currency regime in August last year, allowing more yuan volatility and surprising the market with a 1.9% devaluation against the dollar. The RMB has weakened a total of 6.8% against the greenback to date, including the initual surprise move.

“The US dollar and euro can be volatile as well, but institutions won’t cut their exposure [to those currencies] to zero,” Ma argued. Ultimately, investors will gradually increase their China allocations based on the importance of that market, he added. 

In addition to the currency issue, Ma said the outcome of the Brexit referendum had raised uncertainties about the UK’s position in Europe. Indeed, the vote has caused a number of fund houses to review their European strategy, as reported.

But he remains optimistic about the firm’s institutional business. He said E Fund had talked to many foreign sovereign wealth funds and pension funds – mainly from Europe, US and Japan – in the past two years about potential Chinese investment mandates. 

Many of these institutions have completed their due diligence process – which typically takes 18-24 months – on the firm’s risk controls, compliance and investment capabilities. 

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