Letting the Chinese Industry In

By Miel “Honey” Reyes
Staff Writer

Reforms in-licensing and ownership laws in the Chinese market are becoming more common. For this reason, foreign asset managers may catch new investment streams from domestic investors, as well as sub-advisory agreements with foreign asset managers, which may expose Chinese high-net-worth and family office investors from that country which have thus far been predominately been closed to USA fund sponsors. In a survey prepared by the Asset Management Association of China (AMAC) called the China Investor Survey 2020 the dates illustrated this potential. Hence foreign fund managers were able to initiate funds in Mainland China. It is through Private Fund Management (PFM) License. Or it’s also via Qualified Domestic Limited Partnership (QLDP) scheme.

PFM scheme allows foreign asset managers to enter into a strategic partnership. This partnership is with a domestic partner Wholly-Foreign Owned Enterprise (WFOE).  

It performs as a private fund manager, providing flexible collective investment funds. The operation is direct to eligible investors, institutional and high net-worth investors.

The AMAC shattered the foreign ownership’s silence from 49 to 51 percent. It is through a fund management joint venture on the Chinese mainland in 2018.  A further measure in April 2020 eliminated this level for ownership. The action enabled international companies to get 100 percent of the Fund Management Joint Venture. This acquisition is on the Chinese mainland.

Adjustments allow international fund managers to request a full fund management company license. And, if approved, it would set the stage for fund marketing to domestic investors and vise a versa.

How do these regulatory developments influence their market growth approaches? More so that’s it’s on the Chinese mainland. 23% of survey participants said they have already established a WFOE. 13% of the participants said that they don’t still know. Another 22% said they had intentions to set up a WFOE. The highest 32% said they have no plans to do so at the moment. More so, while a further 8% said they have now applied.

The 45% of asset managers said they’d use this (WFOE) to run a private fund management business or Joint Venture fund structure. In comparison, 36 percent of respondents stated that they would form a (WOFE). It runs a Qualified Domestic Limited Partner or Qualified Domestic Investment Enterprise (QDLP/QDIE).

Global investment managers such as Neuberger Berman and Fidelity have submitted the applications. And so are their submissions to the applications of Blackrock and Vanguard as well.

The application is to create wholly-owned fund subsidiaries in China. This application is right after the 51% cap on foreign ownership of investment firms was lifted in April of 2020.

Morgan StanleyGoldman Sachs, and DBS are among the securities firms that have raised their stakes. It is in their current China securities company joint ventures. The application of Blackrock’s license to administer funds was in 2020. And the grant was successful. Thirty-eight percent of international asset managers said they don’t plan to change their joint venture partnership. It is in response to decent changes in ownership laws. Plus, these asset managers have joint venture agreements in the Chinese market. Forty percent of respondents said they took a majority stake in their joint venture. Or they expect to do it soon.  Generally speaking, few intend to leave current joint ventures. Then create a WFOE in its place, with 19% stating they will pursue this changing path.

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