RQFII managers see brighter prospects in institutional market

Chinese asset managers say they are increasingly looking to target institutional investors in their RQFII fundraising efforts -- an acknowledgment that initial faith in the retail market was misplaced.

In January and February most Chinese fund management firms sought to use renminbi-denominated qualified foreign institutional investor (RQFII) products to tap the retail market in Hong Kong in a drive to build brand recognition.

Choy Peng-Wah, CEO of Harvest Global Investments, told a lunch-time panel debate organised by the Hong Kong Investment Funds Association that it had chosen to focus on retail investors, with 82% of money raised through three large commercial banks and four private banks.

Charles Wang, chief executive of E Fund Management (HK), also notes: “When launching our first RQFII fund we chose to take advantage of the opportunity to build our brand in Hong Kong.”

But he points out that in the latter stages of fundraising the firm sought to satisfy strong demand among institutional investors, with interest growing in RQFII fixed income products in particular.

Ben Zhang, managing director of Haitong International Asset Management, goes further, describing RQFII demand from institutional clients as huge. "Our [RQFII] quota is Rmb900 million, but we could sell Rmb9 billion in a couple of weeks to institutional clients,” he suggests.

E Fund has been focusing on institutional business in the US, Europe and Asia, including hedge funds investing in emerging markets and Greater China.

But Zhang points to the limitation of RQFII funds. While the QFII scheme allows fund management firms to run segregated mandates and perform asset allocation, RQFII products are mostly mutual funds with defined investment strategies (20% in equity and 80% in fixed income, for instance).

"A lot of overseas institutions prefer pure bond funds, and insurance companies face restrictions in terms of equity investment,” he notes.

He agrees that Chinese fund products in overseas markets are still limited in terms of innovation, but adds: "We are open to cooperating with other investment managers to roll out an asset allocation mix."

While the present suite of RQFII funds in Hong Kong is viewed as homogeneous, these Chinese managers have different business models, focus and investment styles when operating onshore.

“The product strategy of RQFII funds differs in detail," Wang points out. "Some are pure bond funds, some focus more on high yield bonds and some on investment-grade names.

"Our RQFII fund invests more than 70% in bonds with AA and above ratings and in government bonds. It takes time for every manager to showcase their capability, style and product features.”

On a reflective note, he notes that while Hong Kong is a highly developed market and home to all kinds of investment products, "in 10 or 20 years when we look back we may find that the biggest development opportunity [for Hong Kong] was the one brought by RMB internationalisation”.