ETFs In Europe: New Firm Takes Over RBS Funds With Eye To China

Last month, China Post Global (U.K) acquired the European exchange traded funds of Royal Bank of Scotland, marking the first time that a Hong Kong asset manager has acquired a European UCITS ETF umbrella and its investment management team. The firm, co-owned by Hong Kong-based China Post Group, one of China’s largest state-owned enterprises, will manage and be the promoter and global distributor for the Market Access ETFs, formerly RBS’ ETFs listed in Frankfurt and Zurich. ETF.com spoke with China Post Global Managing Director Danny Dolan about the change and the firm’s goal of being the gateway between China and the rest of the world, providing mutual access in both directions for investors.

ETF.com: Tells us about China Post Global.

Dan Dolan: China Post Global is a new London-based investment manager to funds of various types and domiciles. Our parent company, China Post Group in Hong Kong, is a very large state-owned enterprise in China, and it decided a couple of years ago to set up a domestic asset management business within mainland China.

The China Post Fund has about 25 live funds that they manage, and about 20 further managed accounts. And last year, China Post Fund decided to create an international asset management business to complement its existing domestic asset management business, China Post Global.

Because China Post Fund is a traditional long-only manager, an active manager, basically stock picker and bond selector, it recognized that it wanted some financial engineering expertise in its international business, because part of its ambition was smart-beta strategies and systematic strategies and ETFs.

Post Global was created as a two-way gateway into and out of China, a way for non-Chinese investors to invest in on-shore Chinese assets. On the other hand, it also seeks to be a gateway for Chinese investors to invest in overseas markets. Those are the two main practices of China Post Global.

By acquiring the Market Access ETF range, China Post Global acquired the team that has managed them. So I and my team have come from RBS, together with the ETF range. We bring many years of ETF structuring and management experience, both to continue managing the existing range, and also to launch new ETFs and continue to grow the Market Access ETF range.

ETF.com: So China Post Global has come in and bought the Market Access ETFs from Royal Bank of Scotland …

Dolan: It didn't buy them, it acquired them. We have taken over the mandates and roles that RBS used to fulfill in relation to these ETFs, which were investment manager, sponsor and global distributor. RBS resigned from those roles when it decided it wanted to exit the ETF industry. A number of other parties applied to the board of the fund, to the Market Access board to take over those roles. China Post Global was chosen for those.

As part of our plans to increase assets under management both from Europe and from China, and indeed from Hong Kong, we plan to cross-list the existing ETFs, not replicating them, but actually listing them on a third exchange.

So we have Frankfurt and Zurich at the moment, and we will, in the short term, rather than further down the road, explore adding a third exchange located in Hong Kong to make it more convenient for Asian investors.

ETF.com: What are your plans for the Market Access ETF family?

Dolan: We've acquired an ETF range which is mixed in terms of its size. Some of the ETFs are above the $100 million mark, which is great and makes them eligible for consideration for most investors. But some of them are smaller, and are below the level at which many institutional investors would consider investment.

So our short-term target is to grow them to a size where they will be eligible for all investors, including Chinese institutional investors. Then the intention is to market the ETFs within mainland China to the institutional investor bases of our parent organizations and to grow them further and then to make a renewed marketing drive in Europe using their increased size to open doors that they can't currently access.

China and Europe are very much in our targets. It's just a question of timing and recognition of the market dynamics and investor preferences in each of the regions.

ETF.com: How are ETFs being used in China?

Dolan: I think it's fair to say that the Chinese ETF industry is still at an early stage, compared to the US market, for sure. Even Europe is not yet as mature as the US by a distance. There are a few funds, but it's very much in its infancy.

There is some investment in overseas ETFs, but again, on a limited basis, because basically not all Chinese investors by any means are permitted to invest in overseas assets. You need to have what's called QDII status, or qualified domestic institutional investor. Basically, it's a quota or permission to invest in non-Chinese assets.

ETFs are becoming better recognized in China. Demand for them is increasing, both for domestic ETFs and for overseas ETFs. But both are at a relatively early stage.

In addition, for us—and one reason why our parent company was very keen to acquire the Market Access ETFs—is that range is quite an interesting one. It's quite niche. It's not really in head-on competition with any of the behemoths of the ETF industry.

It's very focused on commodities and emerging markets and frontier markets. And so, it's a much less competitive space than the developed market equity and fixed income that the very biggest players in the ETF field are competing on.

There is a big focus on commodities in China. There is also a lot of well-documented involvement by China, both at the state level and at corporate level, in the context of Africa and commodities. Four of the 10 Market Access ETFs acquired are commodity-related. Another is on Africa itself, excluding South Africa.

Another is on frontier markets and the other four ETFs are emerging markets. Chinese investors quite like the ability to invest in single countries or single regions, as opposed to global emerging market benchmarks.

ETF.com: So the idea is the funds will stay the same; they'll just take on a listing in Hong Kong down the road?

Dolan: Yes. Hong Kong is a more established exchange for investors outside of mainland China at the moment. There are far more ETFs listed there.

And then, to come back to what you were saying about further down the road, really the reason I mentioned that was in relation to monitoring the evolving ETF market in China. We certainly expect to grow in the coming years and we’re looking to see if any local registration and expansion beyond the QDDI network makes sense.