QDII products to invest independently overseas

ICBC Credit Suisse Asset Management has ended an overseas investment consulting agreement with Credit Suisse, making it the first qualified domestic institutional investor (QDII) product to invest abroad independently.

QDII schemes allow mainland Chinese investors to invest in overseas markets. After the launch of the schemes in 2006, many of China's financial institutions formed ventures with overseas banks to help with their overseas selling.

But as domestic funds develop their own asset management expertise, some say they are likely to follow ICBC's lead and end their deals with foreign providers.

“I believe that as more Chinese talent with overseas investment experience returns home, more QDII products will become independent,” said a marketing representative of the ICBC venture, according to a recent China Daily report.

Yuan Tai PRC Attorneys advised the ICBC fund on its US$443 million QDII launch in February 2008. The firm's managing director, Hubert Tse, said yesterday that the ICBC decision could be followed by similar moves from other sophisticated funds.

“I think it is fair to say that the Chinese [funds] would eventually like to be able to do it on their own without having to engage an offshore investment adviser, but that would depend on each fund's own strategy, expertise or circumstances,” he said.

Tse also cautioned that the regulators might not be so eager to see funds “wandering off on their own too soon” due their lack of experience.

“The initial use of foreign advisers is encouraged by the regulators … and such partnership would allow the funds to learn and pick up the knowledge from the offshore advisers under the QDII scheme,” he said.

The offshore adviser's own circumstances will also be a factor to be considered by domestic funds, but Tse points out that more Chinese funds are setting up branches in Hong Kong (such as China Southern's CSOP Asset Management). They are likely, therefore, to look to manage their QDII portfolio on their own and build both inbound and outbound investment capability.