Tilman Lueder, head of the European Commission’s asset management division that oversees EU rules applicable to collective investment schemes (UCITS) and alternative investment fund managers (AIFMs), has set out an industry-friendly strategy that focuses on taking European investment vehicles to Chinese institutional investors.
Speaking in London at an event hosted by the insurance brokers JLT after a day spent in dialogue with the New City Initiative, a trade body representing owner-managed financial services firms, Lueder was keen to emphasise a shift in focus for the incoming Commission.
“There is a new team of commissioners coming in, and the portfolio set-up has been organised in line with the focus on jobs and growth,” he said.
While he emphasised that the asset management division had always been much less focused on crisis-response, macroprudential regulation, such as Solvency II and the banking union project, he conceded that after 2008 there was a tendency to see the internal market as problematic because of the systemic interconnections it creates.
He cited the reporting requirements in the AIFM Directive as one result of that tendency in asset management.
“We have seen the peak in that, and that there will be a new focus on the internal market,” he said.
“We can see that with the way the European Commission’s structure has been reformed, and the capital markets union was added to Lord Hill’s portfolio for that very reason.”
Jonathan Hill was recently named as commissioner for Financial Services Stability, Financials Services and Capital Markets Union, a move broadly welcomed in all sections of the industry, including asset management.
Lueder’s main focus was on creating new business outside the EU, and particularly in China.
“I don’t think there is any agenda for creating new passporting schemes,” he said.
“It’s more credible to start to work on third-country schemes that exploit the structures we have already established in the form of UCITS, ELTIF, AIFM and European venture capital schemes.
“UCITS has been a great success that gives us a headstart in places like China, Singapore, Hong Kong and Chile.
“We have one of the few pieces of European legislation that has become the global standard, the default model for businesses selling funds in third countries.
“UCITS is the model we could build on for capital markets union, for raising capital in multiple jurisdictions – not just throughout the EU, but worldwide.”
Lueder offered an insight into his detailed discussions with the China Securities Regulatory Commission, the People’s Bank of China and the Chinese asset management community, following on from initial contact made by commissioner Michel Barnier.
The favoured structure would see Chinese investors obtain a domestic investor quota to convert part of their renminbi holdings into the investment currency of a UCITS – the opposite of the QFII arrangements, which involve foreign investors getting a quota for investment in China.
In terms of the types of products Chinese investors will look for, Lueder reported a lot of interest in the use of UCITS to liberalise and increase convertibility of the renminbi.
He cited the example of foreign-currency denominated investments in import or export businesses with exposure to the renminbi, cases where the conversion back to renminbi on redemption provide potential extra return or a hedge for the investor.
He added that the liquidity afforded by UCITS was an advantage for these kinds of investment.
“Investors in China want UCITS that are complementary to what they already have access to,” Lueder added.
“They don’t want European money market funds. They want smaller, specialised, niche investments in their UCITS – this could be a big opportunity for Europe’s smaller asset managers.”
Both messages played well with the NCI members in London.
Dominic Johnson, chief executive at emerging market boutique Somerset Capital, and NCI’s co-founder and chairman, said: “It’s terrifically heartening to hear from Tilman Lueder that his part of the European Commission is focused on fostering true European capital markets integration, assisting our members – and firms like them – to compete better globally.”