Asia Briefing: Funds boss visits Hong Kong to woo Chinese investors

Kevin Murphy, chairman of the Irish Funds Industry Association and head of the asset management and investment funds group at the law firm of Arthur Cox, was in Hong Kong late last month trying to woo investors there to come to Ireland to set up funds.

Hong Kong is a crucial centre for gaining access to the Chinese capital markets, and its funds market is important for Undertakings for Collective Investment in Transferable Securities (Ucits) funds.

These were set up in accordance with the Ucits Directive, adopted in 1985. Once registered in one EU country, a Ucits fund can be freely marketed across the EU. A significant number of Ucits funds domiciled in Ireland are registered for public sale in Hong Kong. Recently, changes in the rules in China allow Ucits funds to invest in China shares using Renminbi Qualified Foreign Institutional Investor (RQFII) allocations given to Chinese- owned Hong Kong-based asset managers.

This offers a great opportunity for the Irish funds industry.

“Allowing these Hong Kong managers to structure RQFII investments through Ucits funds will enable those managers to offer their expertise through Ucits funds to investors across the EU and in other key jurisdictions where the Ucits brand is well recognised,” said Murphy.

“Accordingly, this is a very significant opportunity for those Hong Kong-based managers to use the Ucits brand to distribute globally,” said Murphy.

It is no easy task, wooing the Chinese and Hong Kong investors. Ireland’s main competitor is Luxembourg, which has a full-time representative funded by the government promoting its funds industry.

The investment funds industry in Ireland employs more than 12,000 people, and has €2.3 trillion under management in more than 12,000 funds.

At the same time, promotion of Ireland’s fund industry is undertaken by volunteers, notably Conor O’Mara, who spends a lot of unpaid time plugging Ireland as an asset management hub to the Hong Kong and Chinese communities. The IFIA has been scoring successes, however.

“We were able to announce in Hong Kong that it is expected that the first RQFII Ucits will be launched in Ireland before year end,” said Murphy.

Ireland is now setting up funds for Chinese-owned managers looking to offer their expertise into Europe through Ucits funds, whereas up to now the focus has been on establishing funds for non- Chinese asset managers investing in China through their QFII licenses.

The other reason for Murphy’s visit was the proposal to introduce mutual recognition in China for certain Hong Kong domiciled funds.

“Although there are a lot of details still to be ironed out in relation to the types of Hong Kong domiciled funds that will be recognised by China for sale to investors in China, it is important that those Hong Kong funds be allowed to invest in Ucits funds.

This will ensure that Hong Kong funds and Ucits funds can complement each other giving investors in Hong Kong funds the benefit of getting exposure in the economies of scale that can be available from large Ucits funds.”

Given that we are in an extremely competitive environment with other jurisdictions aggressively competing for the same funds business in Hong Kong and China, a business which is directly linked to job creation in Ireland, it is obvious that the Irish funds industry needs to receive some financial support from the Irish Government, according to Murphy.

“This would ensure Ireland is in a position to capitalise on a market that we in the Irish industry and our competitors regard as the most significant opportunity for growth for investment funds,” he added.