Mainland fund managers are poised to tap into the fund of funds (FoFs) business following the release of a circular by the China Securities Regulatory Commission (CSRC), laying down the guidelines for FoFs investments.
The circular was issued on September 23 this year upon the CSRC carrying out a public consultation with regard to FoFs product operations between June 17 and July 2; the initiative received a total of 45 feedback reports from the industry.
The guidelines outline the criteria qualifying domestic asset managers to run FoFs businesses. For example, eligible managers are required to allot more than 80% of their FoFs’ total assets to other mutual funds, while the trustees and managers are not permitted to overcharge their management and trustee fees. Additionally, the market cap of an individual fund invested in by a FoFs product must not exceed 20% of the FoFs’ total AUM.
Excluding feeder funds of open-ended securities investment funds, mutual funds that are eligible for FoFs investment must have a track record of at least a year, with no less than 100 million RMB (US$14.5 million) in total AUM according to their latest annual reports. Also, qualified managers are required to set up a dedicated FoFs team.
A CSRC official claims that the liberalisation of FoFs would help investors diversify their asset allocation and market risk by leveraging their asset managers’ capabilities in fund investment. The official adds that the next step would be to reinforce the regulatory supervision of FoFs investments to protect investor interest and promote healthy industry growth.
More than ten domestic fund houses including Bosera Fund Management, China Asset Management Corporation, GF Fund Management, China Southern Asset Management, First Seafront Fund Management and Manulife Teda Fund Management are reportedly planning to break into the FoFs market.
Shichen Liu, an analyst at Z-Ben Advisors, tells Asia Asset Management that the FoFs circular has been well received by the market and that many large- and mid-sized managers have commenced preparatory tasks by poaching related talents months ago. “The main hurdle faced by the managers is the scarcity of talents, but we believe the managers will recruit related managers overseas,” opines Mr. Liu.
“The first FoFs product is expected to come online within three months if the managers can file their applications to the regulator by the end of October. The first batch of FoFs products is likely to be fixed-income related and institutional focussed,” he adds.
