UBS Asset Management announced on Thursday that it has created an entity in the Shanghai free trade zone to raise private funds in China to invest overseas via China’s Qualified Domestic Limited Partner (QDLP) scheme.
UBS said that the new company is a wholly owned foreign enterprise that will manage Chinese investments in both alternative and traditional overseas asset classes, with an initial quota of $100 million.
“Our participation in the QDLP program enhances the access to the international markets for our Chinese clients,” said Ling Xinyuan, China Chairman of UBS Asset Management, in a statement.
UBS is following other fund managers including BlackRock Inc , Och-Ziff Capital Management Group LLC and Man Group PLC, all of which are using their access through the QDLP programme to tap high net-worth Chinese individuals and institutional investors for cash to invest overseas.
Unveiled in 2012, the QDLP licence is designed to allow foreign alternative asset managers, namely hedge funds, to raise funds onshore to invest offshore. The first round of licenses was granted in 2013.
In focus is how successful the QDLP funds will be, and how welcoming Beijing will be.
On the one hand China is trying to cautiously open its capital account to allow more outward portfolio investment flows, seen as key to winning greater international support for the yuan’s inclusion in the International Monetary Fund’s basket of reserve currencies, and encouraging more foreigners to hold yuan assets.
On the other hand, China is seeing record capital outflows as the yuan comes under depreciation pressure, and that could ultimately complicate the short-term goal of lowering domestic interest rates.
QDLP, along with its cousin the Qualified Domestic Institutional Investor (QDII) programme and the Shanghai-Hong Kong Stock Connect, all offer investors inside China the chance to invest more outside China.
However, so far QDII and the Shanghai-Hong Kong Stock Connect have struggled to attract Chinese investors, which fund managers have blamed on poor management and marketing, combined with perceived superior returns at lower risk from domestic assets.