Harvest maps out Europe plans after RQFII win

Harvest Global Investment has become the first Chinese manager to enjoy an RQFII quota in both Hong Kong and London after winning an allocation for its UK operation.

The firm plans to use its Rmb3 billion ($483 million) London quota for separate client mandates in an institutional Ucits fund range, its investment director told AsianInvestor.

And the firm could double the staff numbers in its UK office by the end of this year, depending on revenue streams.

Harvest’s Rmb3 billion London RQFII quota, which it was awarded by China's State Administration of Foreign Exchange last Friday, comes in addition to the existing Rmb14.7 billion quota held by its Hong Kong parent company. Harvest now joins other UK-based Western fund houses such as Ashmore and BlackRock, which already have a quota and have launched active and ETF products in the past year or so.

Speaking to AsianInvestor in London, Harvest’s investment director John Kennedy foresaw that part of the quota will be used for separate client mandates and others in a Ucits fund range targeted at institutional clients.

The office, which received its licence from the Financial Conduct Authority in March, is the first China-based manager licensed by the UK regulator. Harvest has to date acted as a servicing centre for existing European clients which have bought into its strategies available in Hong Kong, namely its Asian equities, China equities and fixed income fund ranges.

The UK office also houses the firm’s partnership with Heptagon Capital, a London-based boutique fund house which launched the first Ucits active China A-share equity fund, of which Harvest is a sub-investment manager.

The plan is to be able to offer both mandates and Ucits structures more familiar for European investors for the existing strengths of the group, namely: China equity / on and offshore, China fixed income / on and offshore plus Asia equity including Frontier. Where required, the RQFII quota will be utilised for China onshore.

Harvest will be offering a broader range of ways of accessing these markets, possibly through thematic- or size-related variations on the above but still in the same regions and universe.

“In China, we are an established brand name. With the opening up of the London office, we are now looking after our existing European investors in the same time zone, but we are also looking for similar investors with the same appetite to be early adopters in China equities on fixed income,” said Kennedy.

The marketing campaign will be low profile for the five-man London-based team, of which three are looking after business development.

“We are busy contacting institutions and gatekeepers as we speak. This will be a low-profile campaign. We won’t be chasing retail investors, at least initially, so don’t expect to see us in the Sunday papers,” Kennedy joked.

The group has so far visited institutional clients including pension funds and family offices in countries including the UK and Germany, and regions including Scandinavia and the Middle East.

There are plans to strengthen the team to up to 10 personnel by the end of the year, although this could change depending on revenue progression. Kennedy said there are one-year, three-year and five-year targets, which he believes will be achievable, although he declined to reveal them.

But with mainland Chinese equities getting a beating from some analysts lately amidst claims that the Shanghai and Shenzhen markets, which have rallied 128% and 168% respectively over the past 12 months, are in frothy bubble territory, Kennedy remained adamant that investors will have to buy into China in the future.

“For some investors, [concerns over China’s bull run] is the first question they ask, but you have to be candid as this is a comparatively new market,” said Kennedy.

“If anything, the rally is making people wake up to the fact that this is a market that they need to have access to, if not today, at least in the future. This is a market that is underanalysed internationally even though this is a large part of the emerging market world.”