China's Regulators Quicken Fund Approval Process for Foreign-Backed Institutions
Zhou Ailin
/SOURCE : Yicai
China's Regulators Quicken Fund Approval Process for Foreign-Backed Institutions

(Yicai Global) Jan. 03 -- Foreign financial institutions have ramped up product offerings in China over the last couple of months and the Asset Management Association of China has processed registration submissions much faster than applicants expected, an informed source told Yicai Global.

The Chinese wholly foreign-owned enterprise under Fidelity Investments Inc., one of the world's largest mutual funds, yesterday unveiled its first private equity product in China and its second bond product in the country. The equity fund will invest exclusively in A-share companies.

"We didn't expect to get approval so fast," the source said. Fidelity had been expecting to get authorization for the offerings around Jan. 15, and considered the early acceptance a "generous New Year's gift."

The firm obtained an investment quota of USD1.2 billion as a Qualified Foreign Institutional Investor and CNY460 million (USD71 million) under the Renminbi Qualified Foreign Institutional Investor Program.

A QFII license allows foreign institutions to invest in China's securities market with an investment quota allocated by the State Administration of Foreign Exchange. Firms applying for it need to be at least two years old and have had securities assets worth at least USD500 million at the end of their last accounting year.

An RQFII license allows institutions to reinvest yuan deposits from Hong Kong into the mainland market through funds issued by Chinese brokerages.

Fidelity isn't the only company benefiting from the acceleration in regulatory review. BlackRock Inc.'s WFOE in Shanghai also successfully registered as a private equity fund manager on Dec. 28.

As of the end of November, BlackRock had about USD9.5 billion in quotas under the QFII and RQFII programs. It has also set up two-way investment channels by participating in the stock connect initiatives between the mainland and Hong Kong, and offered two Qualified Domestic Limited Partnership products for high-net-worth Chinese investors, which allow them to invest their yuan overseas. Regulators stopped issuing new QDLP quotas two years ago, but recent reports suggest they started back up recently.

"Some foreign institutions already have WFOEs in China, but they don't want to register too hastily," a Greater China representative for a foreign fund told Yicai Global. "But these institutions will play a bigger role in China's private and public fund market in the future."  

Man Group, one of the biggest hedge funds in the world, also issued its first Chinese private equity fund via its WFOE on Dec. 11. The fund will trade on the country's high-liquidity markets and will pay attention early on to agricultural and industrial commodities, bonds, metals, energy and stock futures.

UBS Asset Management offered the first-ever private equity fund issued by a foreign institution in China in November.

Other foreign asset managers issued private equity products in China last year, and market participants expect more will be rolled out this year.

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Keywords: WFOE , Private Equity Funds , Foreign Institutions , Qfii , RQFII , QDLP