Charles Muller, member of the global KPMG leadership team, reports from his recent trip with his colleagues to Hong Kong, Shanghai and Beijing talking with asset managers, trade bodies and regulators, that domestic Chinese fund managers will soon be venturing out of China. Muller can see a time, not that far ahead, when funds will routinely be priced in dollars, Euros and the Renminbi.
The firm found that Hong Kong is in the process of updating its regulation on fund domiciliation in advance of a possible mutual recognition agreement with mainland China. "While for the moment most funds registered for distribution in Hong Kong are domiciled in Europe or in the Cayman Islands, this could very well change soon. Indeed, Hong Kong has asked mainland China for a mutual recognition agreement of funds domiciled in both jurisdictions, a request that seems to be favourably received in Beijing. This would mean that funds domiciled in Hong Kong could be distributed in mainland China and vice versa."
"This is an extraordinary opportunity for Hong Kong to establish itself not only as a fund distribution but also a fund domiciliation centre. Obviously, if the agreement materializes,† global asset managers will want to create Hong Kong domiciled funds to access Chinese customers," said Tom Brown, KPMG global leader for Investment Management.
"If structured in the right way, the same funds could then also be marketed in Europe to institutional investors via AIFMD," added Muller. "But for this to happen, Hong Kong will need to update its regulation on fund domiciliation, a process that has already started."
Muller found that all Chinese asset managers are now considering extending their activities abroad and their first step is to open a branch in Hong Kong and then to expand to Europe and the US. "We have three Chinese asset managers with UCITS funds in Europe already. What they want to do is get accustomed to the European fund industry and to find investment that can go back into China" Muller said.
Internally, Chinese fund law is changing rapidly as growing appetite and sophistication drives expansion overseas. "Their know-how is investing in China" Muller says. "European investors want to invest in China because it gives them exposure to a new currency and a new economy and all investors want diversification."
It's not going to happen overnight, Muller estimates, as the Chinese approach change cautiously. "For a long time Chinese asset management has been very traditional but sophistication is growing and we were asked many questions on hedge funds as well."
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.