Chinese investors build up offshore asset allocations
HSBC first international bank in China to distribute asset management products investing in QDLP
4 Jun 2020 | Janette Chen

AS Covid-19 and other social events continue simmering, the global market is becoming increasingly volatile. As a result, the valuation of some overseas assets are now relatively favourable to Chinese high net worth investors (HNWIs). Therefore, connectivity schemes such as the Qualified Domestic Limited Partners (QDLP) that enable Chinese investors to allocate assets offshore are gaining more traction. 

On June 1, HSBC became the first international bank in China to distribute asset management products investing under the QDLP scheme.

First launched in 2013, QDLP is a pilot programme that allows foreign asset managers to raise renminbi from qualified HNWIs and institutional investors in China for offshore investment within allocated quotas. There was little interest in the QDLP in the early years as the booming domestic markets kept most HNWIs onshore. But in recent years there has been growing interest in the scheme because of the more attractive valuations of overseas assets plus the need for diversification by Chinese HNWIs.

In response to this development, HSBC has partnered with China International Fund Management, a joint venture of J.P. Morgan Asset Management, to distribute asset management products investing under the QDLP scheme.

According to HSBC, China has granted a total of US$5 billion in quotas since the programme was first launched. Unlike QDII (Qualified Domestic Institutional Investor), QDLP can direct Chinese domestic investors’ funds to overseas markets and allow investments in not only traditional investments but also alternative assets, including hedge funds, private equity funds, and REIT funds.

“This scheme will help clients diversify their investments and leverage overseas opportunities to mitigate risks in their overall portfolio and further grow their wealth, especially amid uncertainty in the global markets,” says Richard Li, executive vice president and head of wealth and personal banking at HSBC China. 

The QDLP programme has been available in cities such as Shanghai and Shenzhen. In April this year, the local regulator in Beijing announced it was accepting QDLP applications, which attracted foreign institutional investors such as Bridgewater and Oaktree Capital. 

Chinese investors are now actively increasing their overseas asset allocation to diversify their portfolio and minimize risks. “On top of the offshore asset classes that will be able to generate better returns, Chinese investors also favour the offshore asset classes that are not yet available in China,” says a senior executive from a US institutional investor’s Chinese subsidiary.  

More developments are expected to come in this space. China’s annual policy-making Two Sessions, held by the country’s top legislature and political advisory bodies, ended last week. During the meetings, regulators further called for the opening up of the financial sector to generate more dynamics regarding cross-border capital flows. This indicates that the schemes that bring about connectivity and access to the Chinese market, including the QDLP, will be further improved and enhanced. 

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