SHANGHAI :
Foreign Bigshots Muscle Into China's Private-Equity Sector
Zhou Ailin
DATE:  Nov 21 2017
/ SOURCE:  Yicai
Foreign Bigshots Muscle Into China's Private-Equity Sector Foreign Bigshots Muscle Into China's Private-Equity Sector

(Yicai Global) Nov. 21 -- Many foreign investment titans have set up wholly foreign-owned enterprises (WFOEs) in Shanghai since last year.

Among these, Fidelity International (Fidelity) and UBS Asset Management (UBS AM) have completed their enrollment with the Asset Management Association of China (AMAC) -- China's fund industry association -- and have respectively issued their bond-type and equity-type private equity funds -- both the first to ever be endowed in the Chinese market.

Seven foreign private equity firms have thus far completed their registration and are poised to partake of the big cake of China's capital market, AMAC's latest data show.

A WFOE foreign firm raises funds in China and invests in assets in China, which is different from that of QDIIs (Qualified Domestic Institutional Investors), QDLPs (Qualified Domestic Limited Partners) or QFIIs (Qualified Foreign Institutional Investors) funds in the past.

The UBS (CN) China Equity Private Fund Series 1 UBS AM established will mainly invest in China's A-share market, which is open to qualified institutional investors and high-net-worth individuals(HNWIs) in China, Yicai Global has learned.

The fund will be managed by UBS AM portfolio manager Zizheng Wang, who has over seven years' experience in equity investment and research in China.

"In the long run, UBS AM believes that China's economy will achieve sustainable growth. A-share market blue chip valuation is reasonable and attractive, and global competitiveness of the leading companies in industries is prominent. Therefore, attractive investment opportunities will continue to emerge from the A-share market," Wang told Yicai Global.

Fidelity International's China Bond No.1 Private Fund primarily invests in China's onshore bond market, the world's third-largest. The fund also targets domestic qualified institutions and HNWIs.

"The yuan bond market will be the core of the Asian bond market in the future, and will also play an important role in the global financial markets in the next few years. The size of China's bond market is currently over CNY65 trillion [USD9.75 trillion], and is expected to reach CNY100 billion by 2020, surpassing that of the Japanese market," Fidelity International Fixed Income Fund Manager Freddy Wong told Yicai Global.

Another three foreign private equity firms completed registration on Nov. 9, information from AMAC shows. They are well-known global heavyweight asset management institutions, specializing in quantitative hedging, active stock selection, ETF (index funds), etc. and they have also had a long-term presence in the Chinese market.

Every year Value Partners visits several thousands of companies -- excluding telephone interviews -- to hold face-to-face exchanges and go on onsite visits, before finally deciding to invest in only 150 firms, Cheah Cheng Hye, chairman of Value Partners Group Ltd. [HK:0806] of Malaysia and a shareholder of one of the firms, said in an exclusive interview earlier with Yicai Global.  "In the selection process, we stick to the 3R principles, namely right business, right people and right price." At the same time, he is also optimistic about the opportunities in the Chinese market.

After completion of the filing, a foreign private equity firm must issue private equity products within six months, per relevant laws and regulations. If it is dilatory, the qualification is revoked.

It is just for this reason that some foreign firms that have already set up a WFOE in China have not yet completed their registration. "After filing, [a firm] must issue products within six months. This poses a tremendous test for the degree of perfection of a foreign firm's China localization strategy and the progress of its team building," a foreign-funded private equity firm chief representative in China told Yicai Global. Therefore, though some foreign firms have set up WFOEs, they still choose to wait and see. However, in the future, the role of foreign firms in China's private equity market will surely increase."

Follow Yicai Global on
Keywords:   Foreign Owned Investment Fund,Registration,New Product Issuance,Financial Openness