Hua An is China’s first asset manager to be granted QDII status.
The driver of QDII is China’s rapidly growing foreign reserves. The central government wants to release some of this money to offset the growth of the inflow. But with the domestic stockmarket performing so poorly last year, the regulator was against QDII for fear that if the door was opened, money would flood out of the country and go to Europe and the US. Now with the Chinese A-share market having risen by 40 per cent since the end of 2005, the regulator has softened its stance on outward investment.
The Hua An International Balanced Fund will invest in a dollar-denominated principal protected structured note provided by Lehman Brothers. The note will be linked to the performance of a variety of asset classes, including fixed income, global equity, real estate and commodities, all managed by Lehman Brothers Asset Management. The minimum investment in the five-year fund is $5000 (€3940).
Lehman Brothers and Hua An have been awarded a QDII allocation of $500m. Another $500m allocation is expected to be approved by the regulator before year-end.
Bradley Okita, head of product strategy for Europe and Asia, Lehman Brothers Asset Management which managed global assets worth $198bn at the end of May, said the Chinese regulator had been “very supportive” of the process of creating the new fund.
Jesse Bhattal, Lehman Brothers’ chief executive officer for the Asia Pacific region, hailed the fund launch as “an important step in expanding Lehman Brothers’ China presence”.
Peter Alexander, head of Z-Ben Advisors in Shanghai, said that depending on supply and demand, he expected a second QDII product to be launched by a wholly-owned domestic Chinese asset manager in the next six weeks to two months. He added that while a third QDII product could come from a joint venture fund management company, he expected initial QDII product approvals to be biased towards large domestic fund managers. This would lead to opportunities for foreign asset managers which presently do not have exposure in China.
“Firms like Lehmans, Vanguard and Barclays Global Investors which are reluctant to enter through a joint venture structure now have the chance to come in and set up a sub-advisory business in co-operation with a larger domestic company,” he said.
Unlike many other international asset managers, Lehman Brothers has chosen not to form a joint venture fund management operation with a mainland Chinese bank or securities house.
Some 23 Sino-foreign partnerships have been forged to date. According to Mr Alexander, a prevailing “IPO mentality” among Chinese investors has meant that these companies have found it difficult to retain the assets they attracted into new mutual fund launches. He added that those investment houses which can point to a historic track record have been able to not only raise above average assets but also retain assets in older products.
HS
