The Ontario Pension Board (OPB) and the Canada Pension Plan Investment Board (CPPIB) have been granted Renminbi Qualified Foreign Institutional Investor (RQFII) status, becoming the first pension funds to gain access to China’s capital markets under the more flexible of the country’s two main licences for foreign institutional investors, according to Z-Ben Advisors in Shanghai.
The licences were approved by the China Securities Regulatory Commission (CSRC) in December and announced on Thursday, according to Charles Salvador, director of investment solutions at Z-Ben Advisors.
A spokesperson at CPPIB confirmed that it had been awarded the licence but declined to comment further.
Like the Qualified Foreign Institutional Investor (QFII) platform, RQFII is a programme under which investors can invest directly in China’s capital markets, but it is much less restrictive.
Under QFII, investors have to allocate at least half of their quota to equities (A-shares), but there is no such restriction under the RQFII licence.
It also provides easier access to the Chinese interbank bond market.
Overall, the RQFII allows for more flexible asset allocation, which is one of the main draws of the licence for pension funds, Salvador told IPE.
Further benefits of the RQFII licence include that investors can use offshore renminbi or other major currencies to fund their quota, whereas QFII is a US dollar-based programme.
The latter aspect may be more relevant for asset owners in the Asia-Pacific region but could still be an attraction for some global institutional investors, said Salvador.
He said the approval of the licences for the Canadian pension funds signals a change in the approach that pension funds will take to investing in Asia.
“If they’re looking to gain direct exposure to A-shares, then they’ll have to think twice about going through the QFII platform,” he said.
“They’ll have to think about RQFII, and then they also have the option of the Connect platform.
“The options have never been more plentiful in the history of foreign investors in China.”
Connect is a platform that links the Hong Kong and Shanghai stock exchanges, giving investors a chance to invest in eligible Shanghai-listed – a quota system applies.
The $272.9bn (€249bn) Canadian Pension Plan is already active in China.
In December, for example, CPPIB invested RMB3.2bn (€460m) in Postal Savings Bank of China, one of the largest retail banks in the country.
The RQFII programme has so far typically been used by asset managers, banks, securities companies, insurance companies and hedge funds, Z-Ben Advisors notes.
GIC, Singapore’s sovereign wealth fund, received an RQFII licence early last year, but IPE understands that there are questions about whether this was granted to it in an asset management capacity.
The announcement of the RQFII licences for the Canadian funds comes after a torrid start to the new calendar year for Chinese markets, with stocks down amid high volatility and the renminbi depreciating, although several portfolio managers and other commentators have downplayed the sell-off and said fears are overblown.
OPB could not be reached for comment by the time of publication.