Efforts by China's asset managers to bring their trading platforms and technology up to global standards are gathering pace as they look to capture opportunities offered by the Qualified Domestic Institutional Investor (QDII) scheme.
Mark McBurnie, sales executive at systems vendor Charles River Development, which recently implemented the latest Version 9 release of its Investment Management System (IMS) for China's largest fund manager, China Asset Management Company (China AMC), says, “The fund managers typically have some form of automation or system in place, even if this is based on legacy platforms or technologies.”
As part of the regulatory approval process for QDII licences, Chinese investment firms are audited in a number of areas, including systems and process, to ensure that the necessary appropriate controls are in place as part of the investment process. “QDII fund managers are increasingly looking to move beyond these platforms and take advantage of the best-of-breed tools and platforms deployed by western fund managers and this is where we expect to see other fund managers following China AMC's lead,” he adds.
China's QDII program was launched in 2006 in an effort to balance the country's foreign exchange inflow and outflow. The 2008 global financial crisis led to a suspension of the program, which was resumed in 2010 when global markets recovered, enabling Chinese fund managers again to diversify often low-yielding domestic investments with international assets. Twenty Chinese fund houses, including the joint ventures of Credit Suisse, UBS and Deutsche Bank, launched QDII funds in 2010, bringing the total number of QDII funds to 30.
China AMC's investment operations for QDII assets are now fully automated. Users in the company's main offices in Beijing and Hong Kong are currently using Charles River IMS, which fully integrates order and execution management capabilities on a single platform. The system interfaces with a number of third-party applications, including a Chinese domestic back-office system, and integrates with various proprietary systems. The China AMC implementation also includes the Charles River Post-Trade module, which centralises confirmation, trade matching and settlement workflow and automates the post-trade process. According to McBurnie, IMS requires little or no customisation to support the needs of a QDII fund manager. “Where clients have specific workflows or business processes that contribute to their intellectual property, say for example their cash management strategy, the open architecture of Charles River IMS allows seamless extension of both workflow and functionality without modification of the core product,” he notes.
Charles River serves approximately 100 client sites across 14 Asian Pacific countries and is headquartered in Melbourne, with offices in Tokyo, Singapore and Beijing and regional presence in Brisbane, Sydney and Hong Kong.
China AMC is the firm's first client in the region to automate operations with its IMS Version 9. “We looked at multiple solutions through a detailed evaluation process with the view to having a solution to support our assets in order to streamline and automate our front-office investment platform,” said Lu Xiaoye, general manager of the information department at China AMC. “The Charles River IMS provides us with a platform that smoothly meets our current investment requirements.”
New requirements
Although Beijing has stepped up approvals of QDII funds – many more QDII funds are expected to be launched this year – demand among domestic investors remains modest due to the renminbi's appreciation, which has reduced interest in offshore investments as well as decreased risk appetite following the global financial crisis that saw many investors get burnt.
But for firms with QDII status, connectivity to global exchanges is top of the agenda. Chris Jenkins, managing director, sales and operations, Asia Pacific at trading technology provider and agency broker Tora Trading, says that the technology requirements of QDII funds will be a departure from their existing domestic systems. “They need to now be able to take on an execution system that is global in its outlook and is able to trade real time around the globe. The system has to cope with all the different exchanges that are available, all the different idiosyncrasies on each exchange, including the many alternative venues in Asia, Europe and the US. They also need to make sure that their infrastructure offers global connectivity and is of the highest quality. It's a bit of a shift for China,” he adds.
QDII firms' participation in trading venues and global liquidity pools is still limited, and Jenkins sees an opportunity in terms of the education that can be offered by global brokerages and technology firms. “Apart from exchange connectivity, the QDII funds will definitely need a way to get access to the alternative pools because they are competing with all the other funds around the world for better prices, services and liquidity. Some of these bigger mutual funds really need to access liquidity and that isn't always available on the exchange,” he asserts.