New China rules to boost small fund houses

27 August 2014   Category: News, Asia, China, Global   By Derek Au

The recent removal by China’s financial regulator of the minimum IPO volume for self-seeded funds will lower the barrier for smaller fund houses to launch new products, according to research firm Cerulli Associates.

The China Securities Regulatory Commission (CSRC) scrapped the requirement for self-seeded funds to meet the minimum IPO volume of 200 million RMB (US$33 million) initially, or gather at least 200 investors, as part of recent regulatory reforms.

Fund management companies are now allowed to set up this type of fund as long as it has been injected with at least 10 million RMB. However, the fund will go into liquidation if it fails to exceed 200 million RMB after three years.

In its report into the matter, Cerulli said it expected the new guideline to make it easier for smaller and newer fund houses to launch products. It added that the move would help fund houses with good asset management capabilities to avoid high trail fees to distributors, as well as excessive churn.

According to Cerulli, trail fees for newly-established Chinese fund houses with limited track records can go as high as 70%.

Cerulli added that these managers should not need to overly depend on distributors to gather assets and “have more time to manage their assets, establish a track record, and build negotiation clout” as a result of the implementation of the new guideline.