China Will Increasingly Open Door To Onshore Private Funds - Study

Tom Burroughes

22 August 2019

Foreign investment houses are likely to boost onshore private fund entities in China and move faster to enter its markets after regulators lifted a number of barriers, a study says.

So far, foreign managers can only invest and raise money onshore if they go through a wholly foreign-owned enterprise route. However, Chinese authorities propose to merge Qualified Foreign Institutional Investor (QFII) and RMB QFII schemes, which means that quota holders can invest in onshore private securities funds. It also means that they can appoint their affiliated WFOE PSFMs as investment advisors, said it would let WFOE PSFMs invest in a broader range of securities via the Mainland-Hong Kong Stock Connect. In July, the State Council said that lifting foreign ownership limits on public fund companies would be brought forward to 2020 from 2021. Eligible foreign managers will be allowed to convert their WFOE PSFMs into public fund companies, while allowing for continuity of business.

Foreign managers will be able to have fully-controlled mutual fund companies earlier, with lower transition costs, and retain minority ownership in their mutual fund joint ventures, the Cerulli report said.

“Many WFOE PSFMs have found it challenging to raise funds in China, due to their lack of brand recognition, onshore track records, and distribution network. As they look to target the retail market, they should be aware that more obstacles may lie ahead,” the organisation said.

The Cerulli report noted that “almost all” global asset managers have shown interest or have already ventured into China.