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Asian fund managers cautious on cross-border funds scheme

Greater Bay Area Wealth Management Connect, GBAWC)Fund managers have reacted cautiously to the launch of a government-sponsored cross-border investment scheme designed to encourage flows between the wealth management markets of Hong Kong and the Chinese mainland, according to research firm Cerulli Associates.

The primary reason, based on interviews conducted by Cerrulli, is managers’ fear of a potential mismatch between investors’ demands and the scheme’s rules on product eligibility.

Greater Bay Area Wealth Management Connect (GBA WC) was launched on September 10 and allows retail investors in mainland China to access investment products, including mutual funds, distributed by banks in Hong Kong and Macau and vice versa.

And while many large banks have reacted enthusiastically to the scheme, fund managers are adopting a wait-and-see approach, states Cerulli.

The caution is more evident among mainland managers, based on the interviews conducted by Cerulli. In particular, there is a concern that there is a mismatch between investor demand for high-risk and high-return products and available product supply.

And while managers in Hong Kong are more optimistic about the opportunities in the mainland market, they also share the concern about the misalignment between investor demand and the low to medium risk products available under the scheme, states Cerulli.

“Despite the immense opportunities available, Cerulli does not expect huge capital flows in the early phase of the GBA WMC,” said Ye Kangting, senior analyst with Cerulli. “This is because regulators, especially those on the Mainland, are concerned about investor protection and capital flow control.”

“Nevertheless, fund managers who want to take part in the GBA WMC should understand investors’ product preferences well, deepen their collaborations with both onshore and offshore distribution banks, and enhance their brands by building or leveraging on strong research and investment capabilities, in order to stand out from the competition,” she added.

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