Bosera’s three approved mutual recognisition of funds (MRF) products, including one bond fund, one equity fund and a mixed asset fund, are expected to launch on 1 June through fewer than 10 local distributors, he said.
Hong Kong’s Securities and Futures Commission (SFC), in December 2015, said: “The MRF initiative is a major breakthrough in the opening up of the mainland’s funds market to offshore funds.
“It will open up a new frontier for the mainland and Hong Kong asset management industries and make available a wider selection of fund products to investors in both markets.”
Differentiator
The Bosera Credit Market Bond Fund will be highlighted, Lo said, as it might stand out among the 16 MRF funds selling in Hong Kong so far, all with a core focus in equities.
“Regional investors in Asia usually show more interest in bonds when they first tap into a new market.”
“For the five months that MRF funds have been selling in Hong Kong, the poor responses from local investors make sense as the funds are all focusing on A-shares and the market was very volatile.”
The bond fund, in the market since 2009, has RMB1.41bn (£149m, $216m, €191m) of assets under management and received a Morningstar five-star rating for both its three- and five-year performance. Manager Guo Jun has run the portfolio since the inception.
US-based Principal Global also plans an MRF bond fund launch in Hong Kong later this month.
Risk/reward
One of the characteristics of mainland bond funds is that they can invest in convertible bonds, which could translate to higher volatility than traditional bond funds, Morningstar China said in a previous interview with International Adviser’s sister publication Fund Selector Asia, and Bosera’s credit fund is no excepetion.
In 2014, the fund benefited strongly from the surge in prices of convertible bonds, Lo noted, although he said that is unlikely to happen again. The fund had an 88% return for that year, 65 percentage points higher than the average of the same fund category (aggressive bond fund), according to Morningstar. But its risk rating is ranked at the highest level by the research firm.
Lo is optimistic the fund will be well received.
“Regional investors in Asia usually show more interest in bonds when they first tap into a new market,” Lo said. “It would be great to raise some AUM [in Hong Kong], but our key objective will be to give more [international] investors an understanding of our investment capability in onshore China.”
Cross-border activity
Lo believes his firm has more overseas investors in its funds compared to other mainland asset managers. The Hong Kong unit, which handles all businesses outside mainland China, had $2.69bn of assets under management as of March.
Half the amount is from non-China investors, Lo said.
The other half is from either onshore investments through the QDII scheme, or mainland investors who have assets in Hong Kong, he said. Bosera Group, its Shenzhen-based parent, has AUM of $61.6bn in total.
The firm first wants to focus on Asian markets and has investors from Korea, Thailand, Malaysia and Singapore. Investors in Asia include government institutions, Lo said.
“Although China’s bonds have become less attractive over the past few years, given the lower yield, they are still more appealing when compared to some foreign investors’ domestic bonds with similar risk levels.”
Cooperation strategy
In terms of fund sales, Bosera’s strategy is cooperate with foreign fund houses in every market outside of China, Lo said.
Most recently, Bosera has partnered with Standard Life Investments to launch in Hong Kong the Bosera-Standard Life Investments Emerging Opportunities Bond Fund, with initial injection of $15m. Application will be made for northbound sales through the MRF scheme once the product becomes eligible, Lo said.
Plans to enter the Taiwan market are in the works, as well as more product launches in Hong Kong, possibly with a foreign partner, he added, but declined to give further details.
The firm also worked with Citigroup First Investment Management in the SAR, Maybank Asset Management in Malaysia, and Krane Funds Advisors in the US.
“As a Chinese firm, our investment capability must lie in China. We do not have a long track record compared to overseas companies and we are not competitive enough,” he said.
However, foreign partnerships can help with overseas sales of the firm’s products. In return, Bosera can share the ‘local wisdom’ on investors and markets that comes from working on-the-ground in China, Lo said.
Bosera’s approach to cross-border work is different from another mainland asset manager, GF International Investment Management, which has developed its own investment team and funds with a global focus by hiring experienced staff externally.
