Fidelity enters China private funds industry, readies products

The fund house is the first foreign firm to win approval to manufacture private funds for onshore institutional and high-net-worth clients. And further licences are in the pipeline.
Fidelity enters China private funds industry, readies products

Fidelity has become the first foreign asset manager to enter China’s $1 trillion private fund industry through a wholly-owned firm in Shanghai, and is working on its first strategies and identifying product trends.

Meanwhile, more firms are expected to get the green light from the regulator in the coming weeks to compete with peers in the mainland onshore private fund industry for the first time.

Fidelity’s onshore wholly foreign-owned enterprise (WFOE) – FIL Investment Management (Shanghai) Company – received its private securities fund manager licence from the Asset Management Association of China (Amac) on January 3.

Fidelity set up the investment management WFOE in Shanghai in September 2015 and can now manufacture onshore investment products for domestic institutional and high-net-worth clients.

Daisy Ho, Fidelity’s managing director for Asia Pacific ex-Japan, told AsianInvestor the Shanghai team was working on its first strategy and speaking with distributors to identify product trends.

The WFOE already has equity and fixed income analysts in place and expects to launch its first products for institutional and wealthy clients by the end of June, added Ho (pictured left). The rules require private firms to launch their first funds within six months of registration.

Fidelity’s private fund firm will be headed by He Wei, general manager of the Shanghai WFOE. He was previously deputy general manager for Fidelity’s Dalian-based WFOE, which provides technology infrastructure and support for the firm’s offices in the region.

Sandra Lu, Shanghai-based partner of Links Law Offices, said last month that the first batch of foreign investment management WFOEs would register for private fund businesses within a month or two. Some 20 foreign managers are keen to set up IM-WFOEs in China and enter the mainland private fund business, she added.

So far nine foreign managers have set up IM-WFOEs, in chronological order: Aberdeen, Fidelity, Bridgewater Associates, JP Morgan Asset Management, Vanguard, Neuberger Berman, Hanwha Asset Management, Mirae Asset Global Investment and Allianz Global Investors.

Shanghai-based consultancy Z-Ben Advisors said Fidelity’s registration marked the start of competition among global managers in China.  

Despite a crackdown on the mainland private fund industry this year, it still grew 85% to Rmb7.5 trillion ($1 trillion) in assets under management as of November 2016 from Rmb4 trillion at the end of 2015, according to Amac data.

The industry includes two types of firms: private equity and venture capital managers, which focus on direct investments; and private securities managers, which focus on public-market bond and equity investments.

Fidelity’s new licence will allow it to conduct business as a private securities manager. This segment comprises 7,940 firms managing Rmb2.7 trillion in AUM as of last November, up 59% from Rmb1.7 trillion at end-2015, according to Amac.

Beijing first pledged to give foreign managers full access to the onshore private fund industry in June 2015. Industry watchdog the China Securities Regulatory Commission then set out official rules for WFOEs’ registration in June last year.

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