The Industrial and Commercial Bank of China Bank (ICBC Europe S.A.) was recently granted authorisation by Luxembourg regulator CSSF to launch its first UCITS renminbi-denominated China Concept Fund in Europe. The senior advisor to the CEO and member of the executive board at KNEIP, Mario Mantrisi, says offering China access to the UCITS brand will bring massive benefits both to investors there, and the fund industry here in Luxembourg.
“There are two main trends affecting the fund business between Europe and Asia”, says Mario. “Today Chinese asset managers are moving to Hong Kong to create Luxembourg or Irish funds and sell them all over the world. The second key development is that China and Hong Kong are working together to create a mutual recognition framework under which funds established in either of the jurisdictions can be marketed in the other”. In addition, discussions are ongoing to extend the mutual recognition platform to Taiwan.
Building a bridge: the obvious answer
Hong Kong and Taiwan are the most popular markets for Luxembourg fund products, along with Singapore, so the mutual recognition process could be a great opportunity for everyone. “Based on our recent expertise with RQFII schemes, we know that China has shown in the past readiness on their cooperation with Europe. The question everyone should be asking in Europe is: “If our Chinese partners are opening up their markets to European products, why should we not open our domestic markets to their products?”. The obvious answer is to offer the Chinese the benefits of the UCITS brand”, highlights Mr. Mantrisi.
This could create great advantages for both sides – Chinese manufactures could gain new investors looking for investment expertise in China, while their European counterparts could offer their funds to Chinese Investors, enabling an access to a larger range of products, a reduction of risk exposures, and finally a door to investment opportunities throughout the whole world. It would be the equivalent of building a bridge between Europe and China that would enable both sides to access the entire world.
Competition on the horizon?
In terms of the chance of China creating its own UCITS-style system, market experts believe it is very small. Why is that? From the Luxembourg perspective, the history shows the perils of isolation are much riskier than the uncertainties inherent in opening up to the world. “Obviously, the Chinese market is so big that it could create its own system, but its investors are keen to invest all over the world, and would welcome the protection of a well proven brand such as the UCITS regime has given to Europeans. In addition, most companies now operate beyond their domestic borders, so their investment strategies are global by nature. Even in Asia, countries like Singapore are working on alternative initiatives with its neighbours to facilitate cross-border fund distribution. That is exactly what UCITS does – it is a brand, a vigorous ecosystem of skilled professionals, and a worldwide success story”, concludes the senior advisor to KNEIP’s CEO. A partnership will definitively be beneficial for fund managers located in both China and Europe and for investors throughout the world.
The first UCITS renminbi-denominated China Concept Fund in Europe offered by ICBC (Europe) S.A. will be distributed in France, Italy, Spain, Belgium and the Netherlands. The bank has mandated the production, translation and dissemination of the Key Investor Information Document (KIID) to KNEIP.
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By Lee Godfrey