Fidelity applies to set up mutual fund company in China

24 May, 2020 16:20
source: pionline

Singularity Financial Hong Kong May 24, 2020

Fidelity International is seeking approval from Chinese regulators to establish a wholly owned mutual fund company on mainland China.

Fidelity International has “submitted an application to the China Securities Regulatory Commission for a wholly foreign owned enterprise mutual fund license, a major step in its full transition to a public asset management company in China,” the company said in a statement.

The firm already has a private fund management license that allows it to manage assets for high-net-worth and institutional investors on the mainland.

The move makes Fidelity the third global money manager to take advantage of recent regulatory reforms in China that opened the door for foreign managers to set up wholly owned fund management companies in mainland China from April 1, following BlackRock and Neuberger Berman.

For most of the previous two decades, foreign managers could only manage money for retail investors on the mainland as minority partners in joint ventures with Chinese managers. Two years ago, the limit on foreign ownership was lifted to 51% from 49%.

In early April, J.P. Morgan Asset Management announced it had reached an agreement with joint venture partner Shanghai International Trust Co. to acquire the remaining 49% in their Shanghai-based joint venture, China International Fund Management, a year after becoming the first foreign partner to get to 51%.

Rajeev Mittal, Fidelity International’s Hong Kong-based managing director for Asia-Pacific ex-Japan, said in the statement that the company is looking forward to “providing Chinese investors with solutions utilizing our global expertise and proven China investment capabilities to ultimately enhance their financial wellness.”

The latest moves by firms such as Fidelity and J.P. Morgan Asset Management suggest an increasingly antagonistic U.S.-China political backdrop — with President Donald Trump taking China’s government to task for the health and economic fallout of the coronavirus that originated in the city of Wuhan — is not making China’s fast-growing money management market look any less enticing to foreign managers.

Earlier this month, U.S. Labor Secretary Eugene Scalia, citing “the direction of President Trump,” ordered the Federal Retirement Thrift Investment Board, Washington, to halt a long-planned shift by a $54.3 billion fund under its purview to a benchmark with greater exposure to Chinese companies. Some money managers expressed concern that other flows into Chinese capital markets from U.S. investors could be diverted as well.

But analysts said such short-term fireworks would not diminish the long-term appeal of China’s huge market.

Foreign managers can be expected to take a “long-term view on China as it remains the market with the most potential for growth,” noted Ken Yap, Singapore-based head of Asia-Pacific research at Cerulli Associates.

“If you’re an asset manager, you need to have a China strategy,” agreed Mark Wightman, a Singapore-based partner and ASEAN industry leader and APAC Advisory leader for wealth and asset management with Ernst & Young Advisory.

Far from being distracted, “if anything, managers are doubling down on China” now, Mr. Wightman said.

A spokeswoman for Aberdeen Standard International said the firm has yet to apply to set up a wholly owned money management company but is evaluating the option. Spokeswomen for Vanguard and Morgan Stanley Investment Management declined to comment.

Investors should also pay ever-greater attention to mainland stocks and bonds in the coming years, analysts said.

For investors under growing pressure to diversify their portfolios in the wake of the COVID-19 market selloff, not having more exposure to mainland stocks and bonds is becoming a bigger and bigger bet, said Craig Baker, London-based global chief investment officer with investment consultant Willis Towers Watson, taking questions at a press event Wednesday.

Paul Colwell, Hong Kong-based senior director of investments and head of the advisory portfolio group-Asia with Willis Towers Watson, at the same briefing said getting access to a different set of companies and sectors “at a certain point in their economic cycle,” against the backdrop of a growing consumer class will offer considerable opportunities for global investors.