Lion Global eyes quota for RQFII fund trio

Singapore-based Lion Global Investors has unveiled plans to launch a suite of RMB-denominated unit trust funds after being awarded an RQFII licence.

The firm, which had $25.8 billion in assets under management as of June 30, was notified of its renminbi-denominated qualified foreign institutional investor (RQFII) licence by the China Securities Regulatory Commission late last month.

The regulator has yet to announce this licence publicly. Lion Global becomes the sixth Singapore fund house to get an RQFII licence after the city-state was handed Rmb50 billion in quota in October last year, as reported in advance by AsianInvestor.

Lion Global chief executive Gerard Lee told AsianInvestor it was now in the process of applying for a quota of Rmb200 million ($32.6 million) to Rmb500 million from the State Administration of Foreign Exchange. The time-frame for approval is expected to be three months.

Lee is hopeful of launching three RMB funds early next year: a bond fund, an A-share product and a balanced fund composed of the two.

It will be the firm’s first direct access to onshore Chinese securities. These new unit trusts will be targeted at wholesale distribution via consumer banks and private banks to retail, mass affluent and high-net-worth investors.

Lee noted that Lion Global could also look at segregated accounts, although the size of the quota would be likely to limit opportunities.

But he described RQFII licences in general as more flexible than their qualified foreign institutional investor (QFII) predecessors, particularly in terms of the variety of uses and timeline for quota allocation.

Lion Global has, in fact, been managing an A-shares portfolio using OCBC’s QFII quota since 2010. It was granted its own QFII licence in May 2012 and received a $50 million quota in March last year, when it took on another A-share mandate for an institution in Singapore.

Asked whether Lion Global would look to make its RMB products available for sale in Luxembourg or even London, Lee said: “We have prospected the market in Singapore, so we know there is existing demand.

“We want to hit the ground running, rather than setting up in Luxembourg and sourcing demand.  Plus we want to maintain as low an expense ratio as possible and it is cheaper for us to set up in Singapore.”

Nevertheless, Lee said Lion Global would consider adding its forthcoming A-share and RMB bond securities to its Asian equity and Asian fixed income Ucits funds in Luxembourg.

“Right now the market [Europe] is not exuberant to invest in onshore Chinese bonds and equities, so we have to take it one step at a time,” he said. “When we sense there is sufficient demand, we will add. But my starting point is Singapore.”

Asked whether Lion Global would bring in more credit and equity analysts to cover China, Lee noted it already had a fixed income team of 17, including 10 Asian credit analysts. It has also been managing an A-share portfolio since 2010.

“Most of the credits being launched in the market these days are coming from China,” said Lee. “Whether these are issued in local currencies or not, it is the same borrowers. So our credit analysts are certainly looking at Chinese credits.

“We have to evolve as the RMB bond market evolves. We will take a business decision on adding resources as that happens. But demand for credit analysts focused on China is only going up, at a rate faster than most of us can imagine.”

Lee reflected that the development of China’s domestic bond market would be driven by RMB internationalisation. “That will lead to the next step, which is that the RMB will be used by a lot of sovereign wealth funds as a reserve currency. To achieve reserve currency status, China needs a strong bond market.”

He pointed out that because China does not run a current account deficit – far from it – its fixed income issuance will primarily come from quasi institutions such as municipal/local governments and state-owned entities as well as corporations.

Firms in Singapore had been awarded a total of Rmb5.2 billion in RQFII quota by the end of August. Fullerton Fund Management, Nikko Asset Management and APS Asset Management were first out of the gate this May. New Silk Road followed in July and Aberdeen Asset Management in August.

The RQFII programme was introduced in December 2011 when Hong Kong was awarded Rmb20 billion in quota. That was expanded to Rmb70 billion in June 2012 and Rmb270 billion in March last year. Further expansion is expected.

The timeline for other markets is as follows: Taiwan in January 2013 (Rmb10 billion, not yet approved by Taipei); London and Singapore in October 2013 (Rmb80 billion and Rmb50 billion, respectively); Paris in March 2014 (Rmb80 billion); and Seoul and Frankfurt in July 2014 (both Rmb80 billion).

The rumours are that Sydney and Luxembourg are next in line.