France's OFI Asset Management will partner with Shenzhen-based buy-side firm Great Wall Fund Management to invest US$150 million in Chinese domestic equities under its qualified foreign institutional investor (QFII) licence, but the French institutional investor will trade its new portfolio from Paris.
In October, Chinese authorities confirmed that OFI, which held €47.8 billion in assets under management as of 31 December 2010, could invest US$150 million in China's domestic equities market by 30 April 2011. The QFII quota represents the amount that must be invested in Chinese mainland-listed A-shares and is 70% of the US$214 million total value of OFI's new China-focused fund.
OFI, which will be advised in its investment decisions by local asset management group Great Wall Fund Management, has launched the dollar-denominated, Luxembourg-based specialised investment fund (SIF) for institutional investors offering two types of shares: one in euros, the other one in dollars. Two senior Great Wall analysts/fund managers will be specifically assigned to follow closely OFI's portfolio.
The firm will largely trade into mainland China from its Paris-based trading desk using either telephone or Bloomberg terminals to connect with CITIC Securities, an investment banking, asset management and brokerage firm for the Shenzhen market and GTJA Securities, one of the largest investment banks in China, for the Shanghai market. In addition OFI has relationships with international banks Macquarie, UBS and Nomura, research house GaveKal and Asian asset management specialist Lloyd George Management for information on the Chinese stocks.
Haiyan Li-Labbé, head of Asian projects at OFI Asset Management, says that the QFII licence is big step for execution and investment purposes. “If the total subscription exceeds our US$150 million QFII quota, we will have a choice of where to trade the 100 Chinese companies that are dual listed on the mainland and in Hong Kong,” she says. “For example the financial sector is highly discounted in China domestic market, by more than 20%, so the A-shares of Industrial and Commercial Bank of China, for example, are much cheaper than H-shares. On the other hand, China Oilfield is listed at a 38% discount in Hong Kong.”
European funds as a whole have increased their allocation of assets into Asia ex-Japan from 9.3% in 2008 to 10.8% in 2010, according to asset allocation monitoring firm Ipreo, reflecting the stronger GDP growth expectations for the region compared to the US and Western Europe.
At OFI Asset Management, the new fund is managed by Li-Labbé and by Jean-Marie Mercadal, the firm's CIO. Based in Paris, they will both be responsible for execution of securities and related foreign exchange transactions. US dollars will be transferred into renminbi via a local custodian bank to fund transactions.
Thierry Callault, deputy CEO of OFI Asset Management, said, “We’re very pleased and proud to have been awarded this quota. With a capitalisation now reaching US$4.5 trillion, the Chinese local market provides a vital source of diversification for European investors, yet access to this market remains contingent upon receiving the QFII quota.”