QDII losses a temporary setback

“W e are the first manager of managers firm to be employed in mainland China,” said Bill Cassidy, managing director at SEI Investments Asia. “The manager of manager concept is still very new there.” A few months ago Beijing-headquartered Yinhua Fund Management signed up, in an unprecedented move, two different foreign managers, Morgan Stanley Investment Management and SEI Investments, as product advisors to its first Qualified Domestic Institutional Investor (QDII) fund of funds product. That was the eighth of the total 10 offshore funds that were launched in mainland China under the QDII scheme. Morgan Stanley acts as the global advisor to the fund, while SEI Investments is responsible for manager selection. The product has a 40 per cent allocation to Hong Kong equities, which are managed by the Chinese firm and 60 per cent to global markets. Compared to the first QDII funds that were launched at the end of last year, the QDII funds now are true global investments, said Mr Cassidy. “In our fund we have exposure to UK, EMEA markets, emerging markets, US markets, Latina America. We are getting a broader exposure to global equities.” Indeed initially the offshore products were very China-centric investment ideas; the funds invested outside China but in Chinese companies and Chinese themes. For consumers, who have money largely in deposits or in Chinese stock markets or real estate, the concept of overseas investing is still a novelty, said Mr Cassidy. They wanted to buy QDII funds because they were popular and not because they were a sound investment, he explained. When the Chinese market started falling precipitously towards the end of the first quarter this year, these funds all lost value; the first money investors invested in the global stock markets they lost, said Mr Cassidy, explaining why the shine had temporarily come off the QDII programme. A young industry But China is only a 10 year old industry, most of the fund managers have only an average experience of 2-3 years and the education process is going to take time. China, and Asia in general, is a product driven absolute return market place. “What we are talking about is asset allocation, diversification and patience.” “One of the things that we are continuing to work on with both our clients and the regulator is to move the market to accept a pure implementation of manager of managers,” said Mr Cassidy. In particular, because SEI global funds are registered in Ireland, a country with which China has not got a memorandum of understanding, SEI is not able to use the managers that it employs in other parts of the world in the People’s Republic of China. “We are doing a fund of funds implementation in mainland China. We use our research, our portfolio con-struction, and our portfolio monitoring but we actually select a fund.” In Asia, the firm sources around $3bn in assets from Honk Kong and 80 per cent of that is related to the banking distribution business. In Korea, where the SEI has a joint venture with a domestic fund manager, the firm has $4bn under management, of which a significant percentage is through banks and insurance intermediaries. “The biggest challenge with local distributors is finding a bank that is trying to change their business model from an advisory model to a discretionary model and wanting to develop and deploy investment programs instead of investment products. That is a C-change in the wealth management market, and it’s happening,” he said. Mr Cassidy also said that SEI Investments do not just do the investment management job. “We also help our partners with their customer material, the reporting material, their market commentaries, the performance reports, the wholesaling, the training and we go on road-shows with them. Anybody can go out and sign a distribution agreement. That doesn’t get you there, raising assets gets you there.” Looking at the future, Mr Cassidy is optimistic. “I am completely bullish on our opportunities in Asia, especially in these times, because when investors have been through some difficult markets they tend to look toward asset managers that are seasoned and have an approach that brings to the portfolio less volatility, more consistency,” he said. “People will understand and come to appreciate the value of professional asset management.” In terms of growth plans, Mr Cassidy said: “Asia has probably ten sub-markets, and we are trying not to spread ourselves too thinly. We have doubled in size in terms of people in the last year and we are focused on markets that are relatively developed capital markets.”

Cassidy: “People will come to

appreciate the value of professional

asset management”