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China to approve new foreign fund managers for QDLP scheme

[BEIJING] Five foreign fund and private equity managers are set to gain approvals to enter a pilot scheme aimed at opening China to the US$2 trillion-plus global hedge fund industry.

The firms, which include UBS Global Asset Management and Deutsche Asset & Wealth Management, received the go-ahead in February to establish local firms to raise yuan from wealthy and institutional investors to spend on alternative assets overseas, said sources with direct knowledge of the matter.

Nomura Asset Management, EJF Capital and CBRE Global Investors are also in the new round of the Shanghai-based Qualified Domestic Limited Partner (QDLP) programme.

The firms, which are expected to be granted foreign exchange quotas of US$100 million, are likely to start operations by June.

The new licences represent the latest move by the Chinese government to lift restrictions on its currency and expand the use of its US$3.73 trillion foreign reserves.

QDLP, which was launched in 2013, allows global fund managers to bring together domestic investors in limited partnerships that buy offshore alternative assets.

The programme is "an effective new initiative that allows asset management firms to help domestic professional investors to access more asset classes overseas," said Ling Xinyuan, managing director and chairman of China at UBS Global Asset Management.

Asset managers will file to receive additional foreign exchange if they completely use the US$100 million initial quota.

An official at the Shanghai Municipal Office of Financial Services confirmed companies submitted their applications in January and were granted unofficial approval in February. "As the (QDLP) programme progresses successfully and the system matures, we will continue to move forward to expand asset classes," said the official, who spoke on condition of anonymity.

Nomura declined to comment. EJF Capital and CBRE Global could not be reached for comment.

In the first round of the Shanghai-based QDLP scheme, only six hedge fund managers, which included U.S.-based Och-Ziff Capital Management Group LLC, Citadel LLC, and UK-based Man Group Plc, received a quota of US$50 million each.

Big Chinese institutions, including China's largest lender, Industrial and Commercial Bank of China Ltd , and CITIC Trust Co have invested in QDLP funds managed by Man Group.

A similar scheme, called Qualified Domestic Investment Enterprise (QDIE), was launched last year in Shenzhen.

Prior to QDLP and QDIE, Chinese investors were not allowed to invest in offshore securities markets unless via the Qualified Domestic Institutional Investors programme, which is however tailored to the needs of retail investors.