US houses to boost funds on offer in Hong Kong to tap opportunities in China

US firms Principal Global Investors and Franklin Templeton eager to tap China under forthcoming cross-selling scheme

PUBLISHED : Tuesday, 04 February, 2014, 5:57am
UPDATED : Tuesday, 04 February, 2014, 5:57am

Two US fund houses, Principal Global Investors and Franklin Templeton, have unveiled plans to add to their Hong Kong-domiciled offerings in order to tap into mainland China opportunities under a soon-to-be signed mutual recognition scheme.

Asset management firm Principal Global Investors has joined the wave of fund companies preparing to sell funds on the mainland under the scheme, which will allow will allow Hong Kong-domiciled funds to be sold on the mainland and mainland funds to be sold in Hong Kong.

JP Morgan, BlackRock and Schroders have already announced plans to expand their locally domiciled funds to prepare for such cross-selling, which is currently banned by the mainland because of its capital controls.

Securities and Futures Commission deputy chief executive Alexa Lam Cheung said last week that Hong Kong and mainland financial regulators had reached consensus and would soon sign the agreement.

Principal, a Mandatory Provident Fund provider, would soon add two more funds to the nine already domiciled in Hong Kong on its retail platform, said Andrea Muller, chief executive for Asia. Its joint venture with China Construction Bank - CCB Principal - has 39 funds on the mainland.

Muller said her firm had set up teams to prepare for cross-selling opportunities under the mutual recognition scheme.

"We believe the mutual recognition scheme will bring big opportunities for overseas fund companies and we are actively preparing for this," she said.

Muller said Principal might use CCB's network to sell Hong Kong-domiciled funds on the mainland and was also discussing mainland distribution with other potential sales partners.

"The more challenging part may be the investor education to encourage them to invest for a long-term view and to keep a diversified portfolio," she said.

Franklin Templeton's chairman and president, Greg Johnson, said the company was eager to expand in the China market, where it was keen on pushing the internationalisation of the yuan and the opening up of the capital market to foreign fund houses.

"It is a natural evolution for China to open up its capital market," he said. "We are studying carefully all the reforms in China and we are well positioned to capture the opportunities arising from these changes."

Besides the mutual recognition scheme, the mainland is also opening up its market through other reforms. It set up a free-trade zone in Shanghai late last year and has said it is looking at establishing similar zones in other cities to make it easier for foreign firms to set up business.

The mainland also plans to expand its two qualified foreign institutional investor schemes, through which it grants quotas to foreign investment companies to invest on the mainland.

Johnson said Franklin Templeton had MPF products domiciled in Hong Kong and would wait for more details of the mutual recognition scheme before deciding whether to base more funds here.

"We will maintain close communication with the regulators here to understand more about the scheme," he said.

Johnson said another mainland reform that would benefit his company was in the insurance sector, with Beijing recently allowing mainland insurance companies to invest overseas.

"We have the experience and network to invest for the insurance companies," he said. "We also have very strong relationships with sovereign funds and other institutional investors in mainland China and we are looking to expand those relationships into other areas. We are very keen on this market."