The Association of the Luxembourg Fund Industry organised its 7th breakfast seminar in Hong Kong on the 20th June 2017 at the Hong Kong Bankers Club. Fund industry experts gave precious insights to participants on topics such as fund distribution, Bond Connect launch and an overview on China’s investment market and its future growth sectors.
Chinese investment market in expectation on the Bond Connect launch
Launched on the 3rd of July, the Bond Connect might be a strong catalyst to drive international exposure to China’s onshore bond market.
China’s bond market is now the third largest in the world and is predicted to double in size in the next 10 years. Its foreign participation is still only at about 2%, well below the international average.
The Bond Connect comes as an additional new channel for foreign investors to tap in the China bonds market.
The last channel that has been announced not long before the Bond Connect is the CIBM, China Interbank Bond Market, which allows foreign investors to tap directly into the China market without passing by Hong Kong.
Depending on managers, two strategies seem to crystallise with regard to the Chinese investment market. While managers having already applied for QFII and RQFII schemes or those focusing on Chinese investments might tend to add CIBM Direct Access, Stock Connect and Bond Connect to their activity, managers with a more mainstream approach would most likely use the Connect programmes as a result of their ease of implementation and cost efficiency.
China’s Future Growth Sectors: Which Areas are of Particular Interest and Potential?
China represents a tremendous source of mutual growth for the global economy in general and for the Luxembourg investment fund industry in particular. Three sectors with a potential for growth, namely Green Finance, FinTech and the One Belt One Road (OBOR) initiative have been highlighted.
Both the European Union and the Chinese governments are keen to promote sustainability and environmental development. Investment funds may, in accordance with People’s Bank of China (PBOC) recommendation # 2 on the Development of green funds of 2015, have an instrumental role to play in the promotion of Green Finance in China. Topics that were more particularly discussed during the ALFI breakfast seminar on June 20 were the importance of Luxembourg funds for investing in A-shares of companies taking an active role in the fight against climate change and the expected performances of ETFs tracking green indices.
FinTech, considered by asset managers as a method to further diversity the methods of distributing their structures across the globe, represents a real challenge for the regulators to supervise this fast growing industry without stifling the innovation and thus this sector’s growth potential.
During the event, experts also recalled that Luxembourg funds, whether through the use of partnership structures (GP/LP) or holding companies that benefit from access to 77 double tax treaties, sit in a very competitive position for assisting in the financing of infrastructure projects linked to the OBOR initiative. This Chinese’s central government strategy, launched in 2013, refers to the initiative of jointly building the Silk Road Economic Belt, which links China with Europe through Central and Western Asia, and the 21st Century Maritime Silk Road, which connects China with Southeast Asian countries, Africa, and Europe.
RAIF, a global success story
RAIF might just be the next success story after UCITS. 178 RAIFs have been set up in the first year following its launch and interest in this type of investment product is going global since an Australian promoter has set up a RAIF in March 2017, and interest goes growing among Asian asset managers as well. As a matter of fact, an important feature that stands for the positive progress of the RAIF is a quick time to market. Although destined to professional investors and not requiring authorisation or supervision by the CSSF, we recall that a RAIF has to appoint an authorised and supervised Alternative Investment Fund Manager.