Global fund managers battle for investor cash bound for China

SHANGHAI Wed Dec 12, 2012 2:17am EST

SHANGHAI Dec 12 (Reuters) - Foreign money managers in China have begun chasing after tens of billions of dollars of funds expected to be drawn in coming years by Beijing's stepped-up opening of its capital markets, creating fresh opportunities for China's stagnant fund sector.

China this year boosted its Qualified Foreign Institutional Investor (QFII) scheme, the main channel for foreign investment into China's stock and bond markets, hoping to attract long-term players such as pension and endowment funds to help stabilise the country's volatile, speculator-driven stock market.

But many of these foreign funds lack the networks and knowledge to invest directly in China, and are turning to third-party managers or advisers to help with their portfolios.

"A lot of new names are coming on. They don't have a footing in China, but they're eager to get into asset allocation," said Gerard DeBenedetto, CEO of AZ Investment Management, an advisory firm majority-owned by Italian asset manager Azimut Holding Spa . His firm has seen a pickup in enquiries from QFII investors over the past six months, he added.

Many of China's domestic fund managers lack the basics, such as English-speaking staff or IT systems suitable for QFII business, and have shorter investment horizons with typically faster turnover in stock holdings and investment managers than foreign-invested asset managers, industry executives and analysts say.

This presents an advantage to foreign fund companies, which are required to operate in China through joint ventures with domestic partners and already have a major presence in the fund sector with a 57 percent share of assets under management.

Targeting the QFII expansion as an opportunity for new business, executives from the Chinese fund ventures of BNP Paribas, Assicurazioni Generali and Deutsche Bank have recently travelled overseas to meet potential clients.

BOON TO STAGNANT SECTOR

China regulators in April vowed to expand the QFII scheme to $80 billion from a previous ceiling of $30 billion and have speeded up approvals of investment quotas for specific institutions.

A record $2.8 billion in quotas received approval in October, more than 10 times the monthly average of the past three years, and some analysts expect the new ceiling to be hit in three years' time.

While even the expanded QFII scheme represents less than 3 percent of total capitalisation of China's stock markets, its rapid growth is a boon to the mutual fund industry, where assets under management have shrunk one-fifth to 2.4 trillion yuan ($384 billion) over the past five years.

Many of the new QFII quotas granted this year have focused on long-term investors, such as sovereign wealth funds and pension funds.

Tomas Franzen, chief investment strategist at the Second Swedish National Pension Fund, which manages 227 billion crowns ($34 billion) globally, said the fund has recently been granted a QFII licence and is now looking for a manager to help it invest in China.

"Generally speaking, we feel our analysis of the Chinese market is not adequate ... so we hope to find good fund managers to help us achieve good returns," he said. The pension fund has not yet received a quota from the Chinese regulator.

Ted Lee, a senior executive at Canada Pension Plan Investment Board, which obtained its $100 million QFII quota in March, said he expects Chinese assets to become a very important part of the fund's portfolio over the next five to 10 years, and is seeking local advisers in China.

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