China US$214 Billion Fund Manager Looks To Boost Overseas Inflows

One of China’s largest asset managers is targeting to almost double the foreign cash it oversees as the nation’s economic rise and financial opening increases demand.

China Asset Management Co will seek to grow such assets to at least US$10 billion over the next few years, up from about US$6 billion, Richard Pan, head of Global Capital Investment at the Beijing-based firm, said in an interview.

Its assets under the Qualified Foreign Institutional Investor plan — a program that allows foreigners to invest in China — have risen from US$1 billion in 2013.

Authorities are easing hurdles for global investors to
access the world’s second-largest financial markets, seeking to lure fresh capital to put China’s economic recovery on a more sustainable footing.

Offshore holdings of Chinese bonds and equities reached all time highs this year after regulators scrapped quotas limiting inflows.

The push abroad comes as global behemoths such as
BlackRock, Inc and Amundi SA move in to grab a slice of the Chinese market. Pan said his firm’s local know-how and past record would make it an attractive venue through which to invest in China.

“We have built a track record of 20% annualized return in the past 8 years that gives us a solid footing,” he said in a phone interview with Bloomberg on Friday.

The company, which has US$214 billion under management, projects foreign investors will hold more than 10% of Chinese equities in 10 to 15 years, creating plenty of room for growth.

Foreigners now hold about 5%, way below the more than 30% in markets like Japan and South Korea, according to the China Securities Regulatory Commission.

ChinaAMC has an over 20-person team that manages its QFII funds, which operates independently from its mutual fund business.

The top 10 stocks in the portfolio have been relatively static over the past five years due to its clients’ long-term investment horizon, Pan said.

Foreign mandate

It’s still rare for foreign institutional investors to hand over their money to local asset managers, said Liu Shichen, Shanghai-based head of research at Z-Ben Advisors. Because of an array of issues, including compliance, their first choice is usually global fund companies, he said.

But top Chinese asset managers such as ChinaAMC have the resources to grow their QFII businesses and stand a chance to gain a meaningful share, Liu said. The expanded scope of the QFIIscheme will also help local firms gain popularity among foreign clients, he said.

ChinaAMC has about 30 foreign clients, including central banks, sovereign wealth funds and government pension funds.

While most of them are from Asia, Pan said there’s great potential to win more mandates from Europe, US and Australia.

It also has a foreign shareholder in Power Corporation of Canada, which helps when wooing global investors, both at the institutional and retail level, said Pan.

Together with Mackenzie Investment, another asset manager affiliated with Power Corp, ChinaAMC launched its first mutual fund Mackenzie All China Equity Fund 2017. It’s considering rolling out a second open-ended fund focused on the China bond market in Canada next year, according to Pan.

ESG funds

Like the rest of the global asset management industry, the firm is pushing fast into funds that offer an environmental, social and governance profile. Its first pure ESG strategy fund launched earlier this year and has gained 65% so far.

More ESG funds will likely be rolled out ahead.

“We have our own ESG framework to capture more meaningful signals for Chinese companies,”’ he said.

“Being key shareholders of many big firms also gives us the power to influence their ESG practices.”

He’s optimistic that tensions will cool between the US
and China as president-elect Joe Biden takes over from Donald Trump, who just signed an order barring American investments in Chinese firms owned or controlled by the military.

“Eventually, US capital, whether from Wall Street or
pension funds, needs to find a place that enables continuing asset growth,” he said. “China is one of few places that can offer such sustained returns.”

Source: Bloomberg