More mainland HNWIs looking offshore

Added 23rd June 2016

Yuan depreciation concerns are driving HNWIs to seek offshore diversification, particularly with liquid and low volatility strategies, said William Ma, Noah Holdings Hong Kong co-CIO.

More mainland HNWIs looking offshore

"The depreciation of the yuan [late last year] acted as an extra catalyst to boost demand for offshore products," Ma told FSA.

"Meanwhile, as the mainland Chinese travel to foreign countries more frequently, they are also getting more familiar with those markets and are willing to invest more offshore."

US-listed Noah Holdings is one of China's few standalone wealth managers targeting high net worth investors in the mainland. 

Its wealth management and asset management business in Hong Kong, set up in 2012 with about 100 staff at the moment, serve primarily the same group of investors in the mainland.

"The majority of our mainland clients are first-generation entrepreneurs. They have factories with strong cash flow and financial strength, and they want to continue being entrepreneurs. But instead of opening new businesses themselves, they are interested in investing in private equity or venture capital funds."

"Globally, China generates the biggest alpha due to heavy retail participation and market inefficiencies, which would be ideal for quant investments"

Clients usually have US dollar assets already outside of mainland China. However, he said Noah now also helps distribute some offshore products in the mainland, for instance, funds from Oaktree Capital Management, by using the Qualified Domestic Limited Partner (QDLP) quota.

Alts focus

Among $2.5bn of assets under advisory under the Hong Kong operations, half is driven by third-party products, while the other half is from its self-managed fund of funds.

The size is only one-tenth compared to its AUA in onshore China, although the growth in the SAR operation is much stronger, Ma noted.

Ma believes Noah differentiates itself from other competitors such as big banks and insurance groups by focusing on alternative investments. 

For the assets under Noah's Hong Kong unit, private equity funds account for 40% of the assets, followed by 30% from real estate and fixed income, and the rest from public funds, such as hedge funds or fund-of-funds. 

For onshore PE funds, internal rate of return usually ranges between mid-teens to about 30%, he said, with lock up period as long as 10 years. Although offshore funds with low volatility only fetch IRR below 10%, they meet investors' needs amid expectations of a falling RMB and high volatility in the onshore markets, he noted.

In terms of overseas investments, more investors are looking for products that offer liquidity but low volatility, he said.

But the firm won't introduce any money market funds, which have been popular in onshore China through online platforms such as the dominant player, Alibaba's Yuebao.

Instead, in the second half of this year, it is planning to push more counter-cyclical funds, such as private equity secondaries or distressed debt funds. 

The next step for Noah's Hong Kong asset management arm, in the coming three-to-five years, is to serve foreign institutional clients demand for private equity and hedge funds in the mainland, Ma noted.

An unamed European pension fund advisor appointed Noah as a hedge fund consultant in Asia, he said, while many others are still observing the markets.

"Globally, China generates the biggest alpha due to heavy retail participation and market inefficiencies, which would be ideal for quant investments."

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