FoHF manager’s JV wins flexible QDLP permit
Hong Kong-based fund-of-hedge-fund manager Persistent Asset Management has won a qualified domestic limited partnership (QDLP) licence via its joint venture with Guangzhou-based GF Asset Management.
It comes after the Shanghai Municipal People’s Government moved to reform the city’s free-trade zone as a testing ground for cross-border investment. It is studying whether to expand free-trade accounts, including the scope and size of cross-border RMB transactions, to encourage different types of institution to set up in the FTZ, supporting the development of a financial exchange platform.
The joint venture, GF Persistent Overseas Investment Fund Management (Shanghai), is 51% owned by GF Asset Management, an arm of GF Securities, while Persistent holds the remaining 49%.
It becomes the first company registered in the Shanghai FTZ to be awarded a QDLP licence and only the second domestic firm to get one. It will now be granted a $100 million quota to raise money in China and invest in overseas alternatives.
The municipal government noted that the JV would also be permitted flexibility, with an additional $100 million granted if 70% of its initial quota was utilised.
The Shanghai government unveiled the latest reforms under the city’s QDLP scheme during a meeting on September 30.
This is the first time in the past two years that the Shanghai municipal government has publicly unveiled details of a QDLP permit approval. It has stepped up its campaign to attract foreign and domestic financial institutions to set up in the FTZ.
The goal of the FTZ is to attract domestic and global institutions to capitalise on efficiency by using cross-border schemes such as QFII, QDII, QDLP, Stock Connect and the pending QDII2.
Wu Yunpeng, the president of GF Persistent, told media about its licence approval on Monday (October 5), saying it would benefit from accelerated reform in Shanghai’s free-trade zone. GF Securities submitted the JV application in May, and approval took three months.
The JV reportedly plans to launch its first QDLP product next month with a focus on overseas private equity. Its target investors will be corporates and institutions, while the minimum investment amount will be Rmb5 million.
One Shanghai-based source told AsianInvestor that GF Persistent was one of the third batch of licences to be issued in the second half of this year.
The other two firms, Blackrock and JP Morgan’s China joint venture China International Fund Management (CIFM), also won licences in July.
Hong Kong-based Value Partners is also understood to be in the third batch of QDLP licences and awaiting official approval of its application.
Historically, QDLP licenced firms have had to set up a wholly foreign owned enterprise (WFOE) and partner a local institution for distribution. As a consequence, initial set-up costs and distribution fees have been seen as barriers for the first batch of foreign managers under the programme.
However, Wu noted that its Sino-foreign JV could solve the distribution difficulty as its parent, GF Securities, had an extensive client base and distribution channels.
“On many occasions foreign managers only introduce existing foreign products in the China market and domestic institutions have merely become distributors,” Wu said. “Our venture will be a departure from this model.”
Wu said GF Asset Management would be responsible for marketing and distribution, while Persistent would select external managers and design fund products in future.
GF Securities is the fourth largest broker on the mainland, while GF Asset Management had a total of Rmb346 billion in AUM as of June this year.
The Shanghai QDLP pilot programme was launched in September 2013 to allow foreign hedge fund managers to raise money in China and invest in overseas hedge funds.
To date the scheme has issued two batches of licences; the first was primarily hedge fund managers and the second was expanded to global fund houses.
Persistent Asset Management was unavailable for comment before press time.