Taiwanese funds seek partners for yuan business

Linking with HK units of mainland money managers lets them hitch a ride on RQFII trade

PUBLISHED : Thursday, 15 August, 2013, 12:00am
UPDATED : Monday, 27 June, 2016, 11:50am

Taiwanese asset management firms are scrambling for a slice of the mainland's 270 billion yuan offshore investment funds market, teaming up with money managers in Hong Kong to enter a market they currently have no access to, industry sources told the South China Morning Post.

At least five firms, including industry leader Yuanta Financial, are in talks with the Hong Kong units of mainland money managers that dominate the fledgling sector, holding 120.9 billion yuan (HK$153 billion) of the total approvals granted by Beijing so far.

"They are eager to participate," said Renault Kam, director at GF Asset Management, which has had five separate proposals for partnerships from Taiwanese fund shops. "Proposals include developing public funds targeted at retail investors in Taiwan, as well as private funds which would be targeted at big, local institutional clients."

Taiwan has been rapidly acquiring yuan deposits in its financial system since launching its bid to become a major centre for the offshore management of yuan in February this year by allowing locals to open yuan accounts in 46 foreign exchange banks or financial institutions.

Yuan deposits totalled 71.2 billion yuan at the end of June in Taiwan. The island's yuan deposit base may grow to 100 billion yuan by the end of this year, and to 200 billion yuan in the next two to three years, according to Deutsche Bank estimates.

Putting that money to work is now a key objective for Taiwan's financial institutions.

Sources involved in talks told the Post that several Taiwanese banks and asset management firms had struck partnership deals with mainland asset managers in Hong Kong to jointly develop yuan-denominated investment products.

In response to inquiries by the Post, Yuanta Securities Investment Trust said it was "highly" interested in developing RQFII business, but declined to elaborate. Yuanta is already a qualified foreign institutional investor in mainland investment markets, having been granted a US$200 million quota in 2011.

Officials at Haitong Securities and Citic Securities confirmed that they had been pitched by Taiwanese firms, but declined to disclose which ones.

Mainland asset managers in Hong Kong and their peers from Taiwan plan to set up the so-called "feeder funds" to help Taiwanese fund managers buy mainland stocks and bonds via the renminbi qualified foreign institutional investor (RQFII) scheme, said the sources, who declined to be identified.

Feeder funds typically channel cash into an "umbrella fund", allowing fund firms to pool different sources of capital and then oversee all investments in one vehicle. This structure allows the Taiwanese firms to direct cash to the Hong Kong units of mainland fund houses, which can invest directly in mainland capital markets via the RQFII channel, rather than applying for a licence and waiting to be granted a quota - a process that could take months.

In mid-July, mainland financial regulators announced that the RQFII programme would be expanded to fund managers in Britain, Singapore and Taiwan after pledging earlier in the year to raise the total RQFII quota for the year to 270 billion yuan.