One of China's state-owned banks has struck a deal with
Citigroup to market its first fund to pension and retail investors
in Europe.
Bank of China Hong Kong Asset Management, which is owned by Bank
of China, has moved a $165 million high-yield bond fund to
Luxembourg from the Cayman Islands and has reached a deal for Citi
to distribute the fund through the U.S. bank's platforms.
BOCHK Asset Management says it intends to boost the fund, though
it didn't say by how much.
The move to Luxembourg, along with a structure that complies
with European investment regulations, mean that the fund can be
widely sold to retail investors and pension funds. The fund
launches on Tuesday.
It will mark the first time one of China's state-owned banks has
solicited retail and pension fund investors in Europe to let them
manage money. It is the start of a broader expansion that BOCHK
Asset Management hopes will lead to winning direct pension fund
mandates in Europe as well as launching more funds.
"We definitely want to establish our brand as one of the best
for China fixed-income and equities investments," said Dr. Au King
Lun, chief executive of BOCHK Asset Management. "We want to bring
our brand and expertise to Europe." He said the fund would start
with pension funds and then expand to include retail investors.
The fund will invest in offshore renminbi high-yield bonds, but
because that market isn't liquid enough for the "very sizable"
fund, that Bank of China wants to create, it will also have to buy
dollar bonds with renminbi, or yuan, currency swaps. It aims to
deliver an 8% yield to income-starved investors in European markets
by capitalizing on the growing use of the yuan by corporations that
want to trade with China.
Dr. King is spending Monday and Tuesday in London for the fund's
launch. He said that investors require "education" because the
asset class is new. "Doing the currency swap is a very vanilla,
bread-and-butter operation in our business," he said.
Citi's role is to market the fund and future funds over its
platform, which Bank of China cannot do because of its relatively
small presence in Europe so far. "We are very pleased to have this
partnership with Citi and think this is the best way for us to
expand in Europe because Citi has a bigger footprint in Europe,"
said Dr. King. He said that BOCHK Asset Management funds could
eventually come to the U.S. in due course but that regulations in
Europe made it easier to start in Luxembourg.
BOCHK Asset Management has $7.7 billion in assets under
management, mostly based in Hong Kong.
Write to Juliet Samuel at juliet.samuel@wsj.com
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