Asset managers have started to submit applications to participate in the Mutual Recognition of Funds scheme, which allows each other's funds to be sold on the Hong Kong and the Shanghai bourses. [Photo/China Daily]

MRF scheme paves the way for major asset managers to sell cross-border products

A wave of new mutual funds are in the pipeline as heavy-hitters from the Chinese mainland and Hong Kong flex their muscles in brand building.

Asset managers have started to submit applications to participate in the Mutual Recognition of Funds scheme, which allows each other's funds to be sold on the Hong Kong and Shanghai bourses.

Bank of China Investment Management, a subsidiary of Bank of China Ltd, submitted its fund applications last Thursday－a day after the MRF scheme was launched.

One is a mixed-asset fund and the other an equity fund. Both will be sold on the Hong Kong markets and will target mainly retail investors.

"Bank of China has the reputation, brand and the investment capability to capture market opportunities offered by MRF launch," said Li Daobin, chief executive officer at Bank of China Investment Management. "The above two funds that we have applied for cross-border sales have the best historical returns in the past few years."

Bank of China Investment Management has 10 mutual funds on the mainland, which are also open to Hong Kong clients, and plans more cross-border sales. The firm had total assets of 400 billion yuan ($64.41 billion) as of the end of June.

"We will utilize the business networks of BOC Hong Kong Holdings (another subsidiary of Bank of China) to promote the sales of the above two mutual funds," Li said. "We will also consider cooperation with other banks in Hong Kong to boost sales.

"Our fund product range will be enriched to suit the investment taste of Hong Kong investors," Li said at a news conference in Hong Kong, to outline the company's MRF business strategy.

But then, the mutual fund sector is becoming extremely competitive. HSBC Global Asset Management, a subsidiary of HSBC Holdings Plc, plans to launch two select funds from its mainland platforms for the Hong Kong market.

Invesco Hong Kong has also submitted an application of its A-share focused mixed securities, which will be managed by Invesco Great Wall Fund Management, to the Securities and Futures Commission for sale approval in Hong Kong.

IGW, the first Sino-American asset management firm on the mainland, is a joint venture between Invesco and Great Wall Securities, a subsidiary of China Huaneng Group. As of the end of March, IGW's mutual fund assets were $11.08 billion.

"For asset managers in Hong Kong and the Chinese mainland, short-term challenges of the MRF would be the operational flow and efficiency of transaction and settlement." Terry Pan San-kong, chief executive officer for China, Singapore and Korea at Invesco Hong Kong, said.

"Another challenge will be ensuring investors in Hong Kong and the mainland have the right level of understanding on the differentiating factors of MRF products versus the funds, which are currently available in their own markets," Pan said.

Mainland and Hong Kong regulators announced the MRF program on May 22, marking another step in liberalizing the mainland's capital markets.

This followed the launch of the Hong Kong-Shanghai Stock Connect trading link last November.

About 100 Hong Kong-based funds and 850 mainland funds are qualified for the scheme, according to the China Securities Regulatory Commission.