July 22 (Bloomberg) -- Call him the Chinese millionaire hunter.
Berrick Wilson is one of at least 30 fund managers who have jumped into the business of luring China’s wealthy to Australia using a new visa program that helps Chinese invest abroad. Wilson has flown to China three times this year from the Melbourne headquarters of investment firm KordaMentha Pty. He’s looking for millionaires to invest at least A$5 million ($4.7 million) and qualify for residency, which gets around China’s restrictions on converting currency and sending it abroad.
“The interest is increasing by the day,” said Wilson, who planned to make his fourth trip this week to corral Chinese investors into the firm’s commercial real estate fund targeted at $100 million and aiming for a 9 percent annual return. Referrals in Shanghai, Beijing and Shenzhen have netted miners, property developers and agribusiness entrepreneurs, he said.
The flow of money into Australia could reach as much A$10 billion a year, according to law firm Baker & McKenzie LLP. More than 1,000 people, almost all from China, have applied so far, and more are expected after Canada canceled a similar program in February amid a flood of applications. The number also may be boosted by a government review to hasten approvals. More than 60 funds have been started to capture the money, including by the largest banks in Australia.
“These are not your usual equity or private-equity type of investors,” said Bill Fuggle, a partner at Baker & McKenzie in Sydney who advises immigrants on the process and asset managers on compliance with visa rules. “Fund managers need to visit China and convince them of investing not just for a visa, but in turn to preserve their wealth and improve their lifestyle.”
Australia’s Significant Investor Visas, which are similar to U.S. EB-5 visas that come with a $500,000 investment minimum and a requirement to create jobs, are designed to attract overseas capital and eventually allow permanent residency in the country.
Immigrants are required to put the A$5 million into government bonds or complying funds that invest in assets such as infrastructure, real estate and agribusiness, for four years, according to the Department of Immigration website. The initial visa requires residency of at least 40 days a year over the period, after which permanent residency can be granted.
The first 188 visa, so-called because the number eight in Chinese sounds similar to the word for making a fortune and is considered lucky, was awarded to an unidentified Chinese toymaker in 2013, according to the government. In May, the government announced a review to “reboot” the investor visa program and ease implementation.
The pace of visa approvals has stepped up since the Liberal-National coalition government was elected in September, with 282 granted in the 12 months through June, compared with just four in the program’s first seven months.
Investment inflows from people with approved visas as well as those expected from 610 people on the waiting list totaled A$4.5 billion as of the end of June. About 39 percent of that money went into managed funds as of March, according to data from the office of Michaelia Cash, assistant minister for immigration and border protection.
Chinese nationals accounted for 91 percent of applications and 86 percent of grantees as of the end of June, according to the minister’s office.
Applicants from Hong Kong, who are counted separately, make up 4 percent of those seeking the visas, while people from Malaysia, South Africa and the U.K. represent 1 percent each.
About 60 percent of high-net-worth Chinese -- those with at least 10 million yuan ($1.6 million) -- have left China or are considering it, according to a report by Bain & Co. released last year. More than half of such individuals without overseas investments planned to make them, while 60 percent of those who have them planned to increase them, it said.
“The rich feel it is time to hedge their bets,” said Fuggle. “The closest option for them is Australia, a country which enjoys a special and very long relationship with the Chinese populace.”
Wealthy immigrants can chose from offerings by private fund managers as well as banks: Westpac Banking Corp., Australia & New Zealand Banking Group Ltd., Macquarie Group Ltd., Commonwealth Bank of Australia and National Australia Bank Ltd. The inflows are “material,” said Fuggle, adding that the visa plan “opens up a new and unclaimed pool of money” that otherwise wouldn’t reach Australia.
“Every single visa applicant I’ve worked with so far has a lot more than A$5 million to bring in,” he said. “I would say the average net wealth of the people willing to come in is A$20 million plus.”
NAB, Australia’s largest lender by assets, offers more than 20 such funds for immigrants, ranging from equities to fixed-income. “To ignore the SIVs will be to ignore the financial opportunity the applicants are bringing into Australia,” said Prini Acharrie, a director in the lender’s private-wealth unit.
Commonwealth Bank has seven SIV funds, including two focused on property, according to its wealth-management unit Colonial First State’s website. Fees range from 0.4 percent to 1.2 percent, it said.
Westpac offers SIV Flexible Investment accounts with a range of options and dedicated bankers who speak Mandarin or Cantonese, according to its website.
“We are very pleased with the level of interest from our clients,” said Elissa Crowther-Pal, head of wealth services at Westpac subsidiary BT Financial Group Ltd., which handles the accounts.
ANZ offers the Opal fund as a complying investment product, while its wealth unit offers portfolio services that also comply, Victoria Kanevsky, a spokeswoman for the bank, said by phone.
“We expect that the SIV investment itself will represent a relatively small proportion of total foreign investment in Australia,” said Jason King, executive director at Macquarie’s specialist investments unit, which offers six such funds. “But the associated benefits from additional investments and ventures undertaken by successful applicants could be significant.”
China’s foreign-exchange rules cap the maximum amount of yuan that individuals can convert into other currencies every year at the equivalent of $50,000 and ban them from transferring currency abroad directly.
This month, the Bank of China Ltd. confirmed the existence of a previously unannounced program allowing Chinese to send their currency overseas for purposes of emigration or residential home purchase. The bank said the transfers have been permitted by China’s regulators since 2011 as part of a trial program in southern Guangdong province.
The Chinese government has taken steps in recent years to allow freer movements of capital in and out of China. The goal of free convertibility of the yuan has been announced by policy makers since the 1990s, and is a step toward stated plans to make Shanghai a global financial capital by 2020.
Applicants for Australia’s program must be sponsored by one of the country’s eight provinces, which want to draw some of the foreign money into their own bonds.
New South Wales, where Sydney is the capital and which has nominated 400 applicants, requires successful foreigners to invest 30 percent of their A$5 million in state bonds, according to an e-mail from Ben Shine, a spokesman for Deputy Premier Andrew Stoner. The money will help fund infrastructure including the North West Rail Link in Sydney and an upgrade of the Pacific Highway along the state’s coast, Shine said.
Investors are interested in property, including offices, hotels and resorts, as well as agribusiness and energy, according to Deloitte Touche Tohmatsu Ltd., which provides consulting advice for SIV applicants.
“The investments my clients are looking at range from agribusiness focused on high protein, meat products -- lamb and beef -- and soy, and clean energy, largely solar and wind,” said Catherine Chow, Deloitte’s Sydney-based partner for the Chinese Services Group.
While the purchase of a home in Australia doesn’t qualify as part of the A$5 million investment, the visa applicants typically buy houses, too, Baker & McKenzie’s Fuggle said.
Chinese investment in Australian property climbed 42 percent to A$5.9 billion in the year to June 2013, surpassing Americans as the biggest group of buyers, the Foreign Investment Review Board said in its latest annual report.
In Victoria state, of which Melbourne is the capital, a record 17 percent of new homes were sold to foreign buyers in the second quarter, while in the state that includes Sydney, the proportion was about 12 percent, according to NAB’s latest residential property survey.
The government’s new attention to processing visas should encourage applicants looking for alternative destinations after Canada shut its door on a similar program, said Mark Wright, head of Deloitte’s immigration practice in Sydney.
In February, Canada stopped issuing investor visas, halting the program with more than 65,000 pending applications, according to a Feb. 11 statement from the country’s citizenship and immigration minister, Chris Alexander.
“Immigrant investors pay less in taxes than other economic immigrants, are less likely to stay in Canada over the medium-to-long term and often lack the skills, including official language proficiency, to integrate as well as other immigrants from the same countries,” the statement said.
Canada’s plan required a willingness to lend C$800,000 ($744,000) interest-free to one of the country’s provinces for five years, and a total net worth by applicants of C$1.6 million.
“If Australia gets this right, it will clearly be a benefit for generations to come,” Deloitte’s Wright said. “Putting a stop to the Canadian program, if anything, has increased the level of interest for the Australian one.”
The anticipated A$10 billion a year in Chinese immigrant investment, even when accompanied by additional purchases of residential property, is still small when compared with Australia’s A$1.7 trillion pension sector, the fourth-largest in the world. Total foreign investment in Australia was A$135.7 billion in the year through June 2013.
KordaMentha hired more than 30 real estate and investment advisers in the past decade from Macquarie, Deutsche Bank AG and Lend Lease Group, and is now opening a China office, Wilson said. That investment, including Wilson’s trips to China, is paying off for the firm, which has managed more than A$7 billion in property assets. Wilson declined to say how many Chinese investors he has found or how much they invested.
“Last year we spent a lot of time in Asia to understand the demand to fine tune our offering,” he said. “We are reaping the benefits of all that.”
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