The increasing sophistication among Chinese treasurers in liquidity management has created opportunities for fund providers in Asia. No doubt with an eye on the increasing short-term fund options available in Hong Kong, Chinese corporate treasurers are adjusting their short-term asset positions with regards to their own working capital requirement.
“We are seeing more of our clients extending the duration of their investments. Previously, they were keeping investments very short, mainly because the market was expecting further US Federal Reserve rate hikes. As those expectations have declined, investors have become more confident in buying longer-duration securities,” says Kheng Leong Cheah, head of global liquidity sales, Asia-Pacific, at JP Morgan Asset Management
According to Cheah, the rising cash management demand from Chinese clients also comes from the rapid expansion of Chinese enterprises, including via Hong Kong-based IPOs, which have come in waves over recent years.
“Chinese domestic corporations are growing rapidly and are now holding more cash. Their corporate treasurers have become more sophisticated and understand that solely focusing on return, while ignoring the investment risks, would not be a prudent strategy,” says Cheah.
While banks are major cash management service providers, Cheah believes that Basel III considerations mean banks are now less suitable for this task. As such, both Chinese and international asset managers have launched several short-term funds - including money market funds - to satiate the working capital requirements of various Chinese treasurers.
In November 2017, E Fund Management (Hong Kong) launched its US dollar money market fund with a management fee of just 0.05% per annum, a fee quite low compared to other cost structures, which has spawned robust demand from Chinese institutional investors. The other distinctive feature of the fund is its T+0 settlement cycle, which is in line with mainland China’s industry standards, but shorter than the international average. Since its inception, the fund has grown its AUM to HK$1.9 billion (US$0.24 billion) as of August 2018.
“As a Chinese asset manager, we know our clients better in terms of what they like and their service requirement,” says a senior executive at E Fund Management (HK) in an interview with The Asset.
For Hong Kong subsidiaries of Chinese asset managers, servicing offshore Chinese clients is still their core business, although it may not be profitable due to its relatively small scale. “Our strategy is long term. The money market fund is just a gate opener for further collaboration in the future. At this point, we are still building up our reputation and brand overseas,” says E Fund Management (HK).
Similar to leading technology companies such as Alibaba and Tencent, Chinese asset managers are also looking to bring onshore practices to the offshore market while complying with offshore regulations at the same time.
For Chinese corporate treasurers and institutional investors, a more competitive offshore market with regards to the asset management industry expands the range of higher-quality products and investment solutions available in the market.
“There are a range of different investment options available, including ultra-safe, but low-yielding assets such as overnight time deposits. Further out the curve, there are money market funds and ultra-short duration funds which offer additional return, albeit with additional risk. So that's giving investors much more choice,” says Aidan Shevlin, head of global liquidity fund management, Asia-Pacific, at JP Morgan Asset Management.