Perhaps 10 to 15 big money managers — including BlackRock Inc. and Franklin Templeton Investments — have begun moving proactively on their lineups of Hong Kong-domiciled funds, while an equal number appear to be “sitting back, waiting for clarification on exactly what's going to happen,” said Stewart Aldcroft, Hong Kong-based CEO of CitiTrust Ltd.
Recent reports that Chinese regulators are talking about mutual recognition with other fund registration centers such as Luxembourg have provided grist for those arguing for a cautious approach, noted Justin Ong, Singapore-based partner and asset management industry leader with PricewaterhouseCoopers LLP.
Mr. Aldcroft said it's highly unlikely that Luxembourg or London will ink a mutual recognition deal with China.
Others, noting the pace and scope of regulatory reform in China in the past year or two, are less certain. “Chinese regulators are moving the goal posts in many dimensions simultaneously,” said Kai Sotorp, Hong Kong-based group managing director and head Asia Pacific with UBS Global Asset Management. And after the psychological leap to mutual recognition, the next move to add a Luxembourg or a Dublin could follow in relatively short order, Mr. Sotorp said.
For now, a number of money managers say they want to see the details — first for China and Hong Kong and later for Singapore, Malaysia and Thailand — before deciding how to move forward.
“Everyone is waiting with bated breath to see what the (China-Hong Kong) announcement will say,” noted Gerry Ng, CEO of Barings Asia, Hong Kong. Mutual recognition should prove “very important” to a firm such as Barings, where Asia accounts for almost 40% of both revenue and assets under management, he added.
Barings' leadership team has thought about the prospects, but “we need to be very clear about what we are going to do,” Mr. Ng said.
“It's a little hard to place bets when nobody knows what the rules are going to be,” agreed Shelly Painter, regional managing director, Asia, for Vanguard Investments Hong Kong Ltd.
Still, “we believe that this is something we'll be able to take advantage of at some point,” said Ms. Painter. When the rules are clear, “we can put pen to paper,” she added.
RBC's Mr. Gordon said one topic money managers are focusing on is whether there's likely to be some first-mover advantage in selling Hong Kong-domiciled funds to domestic Chinese investors.
UBS' Mr. Sotorp said he doesn't expect that to be the case. China is changing so fast there should be a number of ways to gain traction in that market, he said. At the same time, obstacles that need to be overcome to successfully pull off any of the mutual recognition schemes moving ahead in Asia now could prove more difficult than generally anticipated, requiring years to hammer out, he added.
Still, when the ink on the mutual recognition documents dries, money managers will respond.
The China-Hong Kong details should come out “within a month or so, if not sooner ... and at that point, you'll start to see a lot of scrambling for positioning,” predicted Citi's Mr. Aldcroft.
Steps related to distribution and branding in China will also figure prominently, market veterans say.
China-Hong Kong mutual recognition looks interesting to overseas asset managers because it's their first real opportunity to distribute their own product in China, but whether retail investors there will buy “is another matter,” said the Asia-Pacific CEO for one New York-based asset manager, who declined to be named.
“Most of the global firms have zero branding in China,” and creating a brand there will prove a significant challenge, agreed Mr. Aldcroft.
