How BEA Union is tapping the Hong Kong-Switzerland MRF

The success of the Hong Kong-China Mutual Recognition of Funds (MRF) has overshadowed the other MRF scheme between Hong Kong and Switzerland. But some asset managers, like BEA Union Investment, have begun using the Hong Kong-Switzerland MRF to tap private bank investors in Switzerland.

Eleanor Wan, chief executive officer of BEA Union Investment, the joint venture asset management company of Bank of East Asia and Union Investment (the asset management unit of Germany’s DZ Bank), sees the Hong Kong-Switzerland MRF as a means of seeking opportunities in other markets outside China, particularly in Europe.

“The potential for our funds in Switzerland is very good because the Swiss market is dominated by the private banks. The MRF will help us get our funds distributed to the private banks in Switzerland,” Wan says in an interview with The Asset.

BEA Union Investment has registered two of its Hong Kong-domiciled funds with the Swiss Financial Market Supervisory Authority (FINMA) in order to be able to distribute these funds in the Swiss market. It has also contracted BNP Paribas Securities Services, the asset servicing unit of BNP Paribas, to serve as the master agent for its MRF funds in the Swiss market.

Since Swiss private bank investors are currently seeking opportunities for investing in Asian fixed income assets as well as in multi-asset funds, BEA Union has registered its Asian bond and currency fund and its multi-income fund for the Hong Kong-Switzerland MRF.

The Asian bond fund, with US$323 million in assets under management (AUM), invests in lower-rated fixed income instruments, including below investment grade and non-rated debt securities, that are subject to greater credit and liquidity risks than higher-rated securities. It has achieved 6.4% current yield and has a duration of 3.5 years.

At the moment, the investors in the Asian bond fund are mainly from Hong Kong and China since the fund is offered in the Chinese market under the QDII scheme.

“Interest in Asian fixed income has been building up continuously, particularly since this asset class is a good means of providing yield enhancement for investors. Global investors are now realizing the merits of investing in Asian fixed income,” Wan says.

The multi-income fund, with US$488 million in AUM, invests directly in listed Asian REITs, equities and managed funds, and is thus subject to the risks generally associated with such asset classes. It has a current yield of 5.3% and a duration of 3.7 years.

Wan, who will be travelling to Switzerland in September to meet with clients, says the growth of the Asian capital markets, particularly in China, is a potentially compelling story for Swiss private bank investors, but they have to be properly informed about the opportunities in these markets.

“The Chinese bond market, for example, is the second largest in the world, but investing into that market is not very easy. However, now we have investment channels such as Bond Connect, the Connect systems (Hong Kong-Shanghai Connect and Hong Kong-Shenzhen Connect), QFII and RQFII. We can help them to better understand the market and how to tap the opportunities offered by these channels,” Wan says.

The Hong Kong-Switzerland MRF was announced in December 2016 when the Hong Kong Securities and Futures Commission (SFC) and the Swiss FINMA signed an agreement allowing eligible Swiss and Hong Kong public funds to be distributed in each other’s markets through a streamlined vetting process.