QDIE quota shortage for 30 new licences: sources

Shenzhen is believed to have handed out licences – but only $1 billion in extra quota – to another 30 fund houses under its QDIE cross-border alternative investment scheme.
QDIE quota shortage for 30 new licences: sources

Shenzhen’s Financial Services Office (FSO) has reportedly handed out around 30 new licences but only $1 billion in fresh quota under the QDIE programme in recent weeks, amid rising demand for foreign assets. 

The qualified domestic investment enterprise (QDIE) scheme is Shenzhen's equivalent of Shanghai's qualified domestic limited partner (QDLP) programme. Each allows wealthy investors to make offshore alternative investments.

Three QDIE licences have been awarded to Shenzhen-based firms: Invesco Great Wall Asset Management, the segregated account subsidiary of US-based Invesco’s mainland joint venture fund firm; Ping An-UOB, Singapore-based UOB’s mainland joint venture fund company; and Ping An Trust, a trust subsidiary of insurance group Ping An. 

Invesco Great Wall received its licence on November 3 and plans to structure products that invest in Invesco’s alternatives funds overseas, but did not give a target date for launching them.

A total of 38 domestic and foreign firms have submitted QDIE licence applications, of which about 30 have received approval, said a Shanghai-based source, with each only receiving some $30 million in quota. Shenzhen FSO had originally planned to award only 15 licences this year, as reported in April, but has seen a surge in demand. 

The initial batch of eight licence-holders had quickly used up their total of $1 billion of quota after the programme launched in January.

Most QDIE firms are believed to be Chinese asset managers. However, AsianInvestor understands that there are foreign firms in the second batch of licensees, but could not identify any of them by press time.

Shenzhen FSO had verbally indicated to certain firms that they would receive a licence earlier this year, but it can only officially issue the documents once new quota is approved by China’s State Administration of Foreign Exchange (Safe), the source told AsianInvestor.

The FSO is believed to have started to issue licences and quotas in recent weeks after Safe approved an additional $1 billion in QDIE quota. It is not clear when this happened, although Chinese news publication 21st Century Business Herald reported in June that the quota had doubled to $2 billion.

Six managers received QDIE licences earlier this year: China Southern Capital, China Merchants Wealth, Great Wall Fu-Hao Fund Management, Shenzhen Qianhai CCT AM, Everbright Prestige Capital AM and Penghua AM.

The latest QDIE expansion comes amid growing appetite from Chinese investors for overseas allocations and rising competition for investor funds between the cross-border schemes in Shanghai and Shenzhen.

The two cities have sought to position their respective schemes differently, as they are competing with each other for investor money.

Shenzhen FSO chose names that are well known in the city to optimise their ability to gather assets, the source added, noting that the first batch of managers under Shanghai's QDLP scheme had some difficulties in fundraising.

Shanghai's QDLP aims to include well-known global asset managers, said the source. While it has started to include domestic managers this year, Shanghai FSO stipulates that such local firms must have at least one foreign shareholder. One example is China International Fund Management, in which JP Morgan AM has a stake.

Meanwhile, Shenzhen QDIE is generally more flexible than QDLP, as licensed firms can introduce products that invest in primary markets and commodities, said the source. But they need to team up with foreign managers, as they do not have alternative investment capabilities. It is possible that they will act as more as distributors than asset managers, he added.

Three other cities – Qingdao, Tianjin and Zhongqing – have also launched QDLP programmes in their free trade zones, but they have not yet handed out licences or quota. Despite this seeming growth in competition, a Beijing-based lawyer said cities like Qingdao and Zhongqing were not attractive to foreign companies.

Shenzhen FSO could not be reached for comment by press time. 

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