Exclusive - Allianz to set up China fund unit to target investments abroad -sources

By Samuel Shen and Michelle Price

SHANGHAI/HONG KONG (Reuters) - German insurer Allianz is setting up a wholly-owned unit in Shanghai to launch hedge funds that invest abroad, three sources said, as some foreign managers prepare for China to ease curbs on overseas investments aimed at stemming capital outflows.

The unit of Allianz, the world's fourth largest money manager by assets, will then apply for a special licence that would enable it to raise funds in China directly and invest the proceeds overseas, the sources told Reuters.

Allianz is looking to tap into Chinese investors' growing demand for overseas assets, which has been accelerated by a weakening yuan. China has so far been heavily restricting capital outflows to relieve pressure on its depreciating currency.

Europe's largest insurer is planning to apply for the Qualified Domestic Limited Partnership (QDLP) programme licence. The licence allows foreign managers greater freedom to raise funds within a set quota from domestic high net-worth Chinese investors through a wholly owned fund management company.

Licensing for the QDLP scheme has been informally suspended this year as Beijing tries to stem the capital outflows, but several foreign managers are positioning themselves in the expectation the regulators will grant a new round of QDLP licenses and quotas next year, the sources added.

A spokeswoman for Allianz, which owns U.S. bond fund manager Pimco and has nearly $2.2 trillion assets under management globally, confirmed the company is in the process of setting up the wholly-owned foreign entity but declined to comment further.

The Shanghai Municipal Government Financial Services Office, which runs the QDLP scheme, did not respond to requests for comment. The State Administration of Foreign Exchange, which controls China’s capital account, said in a statement the Shanghai government was responsible for any policy adjustments to the scheme.

The sources declined to be identified as the information is not public.

A growing number of foreign financial institutions, including Aberdeen Asset Management, U.S. hedge fund Bridgewater Associates and Vanguard, have recently set up stand-alone money-management firms in China as Beijing further deregulates the mainland fund industry.

Previously, foreign asset managers looking to distribute investment products in China had to operate through minority-owned joint ventures with domestic firms, but Beijing has been gradually loosening the reins.

Allianz already has a fund management joint venture, GTJA Allianz, but its partner, Guotai Junan Securities, said in August it was putting its 51 percent stake up for sale amid a broader restructuring.

STRONG DEMAND

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.

Reuters reported last year that BlackRock Inc become the first traditional asset manager to receive the QDLP licence, joining a handful of other global funds, including Man Group Plc and Och-Ziff Capital Management Group.

(http://www.reuters.com/article/us-blackrock-china-idUSKCN0PV10320150721)

QDLP funds are private, meaning data is not publicly available on assets or performance, but industry insiders said BlackRock saw strong demand for its first QDLP product, the Health Sciences Hedge Fund.

China's domestic hedge fund industry has ballooned in recent years with 7,800 private investment fund managers accounting for around $361 billion (289.43 billion pound) in assets as of September, according to the Asset Management Association of China.

Many wealthy Chinese are keen, however, to hedge their exposure to the falling yuan through offshore assets. The Boston Consulting Group estimates that the proportion of personal Chinese wealth allocated offshore will increase from the current 4.8 percent to 9.4 percent, or by 13 trillion yuan ($1.9 trillion) in assets, by 2020.

(Reporting by Samuel Shen in SHANGHAI and Michelle Price in HONG KONG; Editing by Denny Thomas and Muralikumar Anantharaman)