Foreign firms sweat to secure China private fund licences

APS, Credit Suisse, Value Partners and Invesco have set up onshore entities in China in the past three months. But they face various hurdles in registering as private fund houses.
Foreign firms sweat to secure China private fund licences

Four foreign fund houses have set up so-called investment management wholly foreign-owned enterprises (IM-WFOEs) in China this year, joining 10 peers that had already done so. Now comes the hard part.

Invesco was the latest to establish one of these onshore entities, on April 13. Credit Suisse and Hong Kong-based Value Partners established their IM-WFOEs last month and Singapore’s APS Asset Management in February. (See table below.)

Both Invesco and Value Partners have said they plan to enter the private fund management (PFM) market by registering with the Asset Management Association of China (Amac). APS and Credit Suisse are expected to do the same.

PFM hurdles

But setting up the WFOE is just the start of the process, said Ying White, head of the China funds and investment management practice at law firm Clifford Chance.

After that, asset managers face many practical issues to address before they can register as private fund companies. Fidelity, for instance, only received its PFM licence on January 3 this year, after establishing an IM-WFOE in September 2015. 

Moreover, the PFM guidelines only came out very recently, so there are a lot of questions about their interpretation, White told AsianInvestor. For example, firms must have “sufficient infrastructure” to conduct the proposed business, she noted. “But what is ‘sufficient infrastructure’?”

Date of establishment of IM-WFOEs in China (source: Z-Ben Advisors)

Aberdeen Sept 14, 2015
Fidelity Sept 14, 2015
Bridgewater Associates March 7, 2016
JP Morgan August 24, 2016
Hanwha AM October 21, 2016
Vanguard  November 10, 2016
Mirae Asset November 24, 2016
Neuberger Berman November 28, 2016
Allianz Global Investors December 6, 2016
Axa  December 29, 2016
APS February 15, 2017
Credit Suisse March 3, 2017
Value Partners  March 23, 2017
Invesco April 13, 2017

Foreign asset managers also remain concerned about capital repatriation from the mainland, said White. “They want to know how they can take their profits out of their China businesses. There’s been so much reporting about capital controls, so naturally this has been an item on the agenda.”

There are a number of issues that require discussion with the regulator, she added.

The PFM requirements include having the right staff in place, sufficient business relationships with distributors and prime brokers, a clear product strategy set out for the next year or two, said Ivan Shi, head of research at Z-Ben Advisors.

“It’s better to have all this done before the application,” he told AsianInvestor.

Steady stream

Shi said he did not know how many WFOE applications were in the pipeline, but he envisaged a steady stream this year.

Indeed, US firms MFS Investment Management and Principal Global Investors and Switzerland’s Pictet Asset Management have all indicated a desire to set up WFOEs in China. Pimco has also said it is likely to go down this route at some point.

And most foreign asset managers will be targeting private fund company registration, Shi noted. But passive-fund focused managers are less likely to do so, as others have suggested.

Plans and progress

AsianInvestor asked the four firms to have established IM-WFOEs this year about their China plans and progress on registering as private fund companies.

Albert Teoh, managing director of Value Partners’ China business, said one of its senior mainland staff would head the new PFM unit and that it would add to its 15 China-based personnel. He declined to identify the new head. This is in fact Value Partners’ second WFOE; the first was an advisory unit set up in 2011.

APS did not provide comment by press time about its China plans or the status of its Amac registration. Credit Suisse and Invesco both declined to comment for this article.

Michael Levin, Asia-Pacific head of asset management at Credit Suisse, said: “We are not able to comment on ongoing licensing applications due to the regulatory sensitivity.”

Meanwhile, Neuberger Berman last week unveiled the head of China institutional business for its new WFOE in Shanghai. William Hui had joined in January from Deutsche Asset Management.

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