Large China-based fund managers are setting up shop in Hong Kong for the first time, seeking to fill Chinese investors’ appetite for U.S. dollar-based products and international exposure after the country reopened its borders.
The foray by China-based funds into Hong Kong kicked off last year as China lifted years of COVID-19 lockdowns, and as high net worth Chinese families were finally able to travel and diversify investments in their hunt for stronger returns.
At least eight mainland-based funds, including billion-dollar yuan quant funds, equity funds and mutual funds, have set up operations in Hong Kong in the past six months, and more than 10 others are headed there, according to a Reuters tally based on sources and public information.
Most of them are rapidly building offshore sales and research teams and preparing for the launch of their first U.S. dollar funds. As mainland-based funds are yuan denominated, fund managers need to set up in Hong Kong to be able to offer foreign currency products.
One of those firms, Beijing-based Ren Bridge Asset Management, which manages 17 billion yuan ($2.5 billion), opened an office in Hong Kong in March and is in the process of applying for an asset management license there.
The fund, which has delivered annualised returns of 21% since 2017, has launched a fund offshore with a long-bias equity strategy, mostly for Ren Bridge’s existing clients, including corporates and family offices, with funds abroad.
Xue Youwei, former chief financial officer of Lion Fund Management, is to oversee the overseas operations.
“We are optimistic about Hong Kong as the global asset management hub. Through offshore funds we hope to expand the investment scope, explore hedging strategies, while learning from excellent overseas peers,” Xue told Reuters.
Shanghai Qianxiang Asset Management, a quant hedge fund in China managing over 10 billion yuan, received an asset management license from Hong Kong’s Securities and Futures Commission in February and is developing its first global commodity trading adviser strategy for investing in overseas markets.
“Foreign managers are getting licenses and issuing funds in China - it’s natural for us to go overseas,” said Jason Yim, managing director of QX Asset Management in Hong Kong.
Wealth management firms such as Noah Holdings, China’s largest independent wealth manager, are also aggressively expanding teams in Hong Kong.
EXPONENTIAL GROWTH
China’s onshore hedge funds have seen exponential growth in the past decade, with 6 trillion yuan of assets under management, according to UBS research.
Qianxiang’s bigger competitor Lingjun Investment, which manages more than 60 billion yuan, formed a Hong Kong marketing team and launched its first offshore quant fund late last year, according to regulatory filings and sources.
Star asset manager Foresight Fund Management, a Shanghai-based mutual fund founded by veteran investor Chen Guangming, announced the opening of its Hong Kong branch in March.
Erin Wu, head of investor relations at OP Investment Management, a Hong Kong-based hedge fund platform that provides services to new funds, said she has received more inquiries this year than before the pandemic. Wu is talking to more than 10 China-based managers on preparing an offshore structure.
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