Bank of China to Sell Bond Fund in Europe

One of China's state-owned banks has struck a deal with Citigroup to market its first fund to pension and retail investors in Europe.

Bank of China Hong Kong Asset Management, which is owned by Bank of China, has moved a $165 million high-yield bond fund to Luxembourg from the Cayman Islands and has reached a deal for Citi to distribute the fund through the U.S. bank's platforms.

BOCHK Asset Management says it intends to boost the fund, though it didn't say by how much.

The move to Luxembourg, along with a structure that complies with European investment regulations, mean that the fund can be widely sold to retail investors and pension funds. The fund launches on Tuesday.

It will mark the first time one of China's state-owned banks has solicited retail and pension fund investors in Europe to let them manage money. It is the start of a broader expansion that BOCHK Asset Management hopes will lead to winning direct pension fund mandates in Europe as well as launching more funds.

"We definitely want to establish our brand as one of the best for China fixed-income and equities investments," said Dr. Au King Lun, chief executive of BOCHK Asset Management. "We want to bring our brand and expertise to Europe." He said the fund would start with pension funds and then expand to include retail investors.

The fund will invest in offshore renminbi high-yield bonds, but because that market isn't liquid enough for the "very sizable" fund, that Bank of China wants to create, it will also have to buy dollar bonds with renminbi, or yuan, currency swaps. It aims to deliver an 8% yield to income-starved investors in European markets by capitalizing on the growing use of the yuan by corporations that want to trade with China.

Dr. King is spending Monday and Tuesday in London for the fund's launch. He said that investors require "education" because the asset class is new. "Doing the currency swap is a very vanilla, bread-and-butter operation in our business," he said.

Citi's role is to market the fund and future funds over its platform, which Bank of China cannot do because of its relatively small presence in Europe so far. "We are very pleased to have this partnership with Citi and think this is the best way for us to expand in Europe because Citi has a bigger footprint in Europe," said Dr. King. He said that BOCHK Asset Management funds could eventually come to the U.S. in due course but that regulations in Europe made it easier to start in Luxembourg.

BOCHK Asset Management has $7.7 billion in assets under management, mostly based in Hong Kong.

Write to Juliet Samuel at [e-mail]

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