Seeking to take advantage of a new channel for so-called 'sponsored funds', China Asset Management is seeking approval for five exchange-traded funds.
China's biggest asset management firm this week submitted to the securities regulator ETFs that will track Shanghai Stock Exchange indices, including consumer staples, materials, energy, financials, and real estate and healthcare.
All five are sponsored funds, a new product allowed by the China Securities Regulatory Commission (CSRC) since June 20. These funds are intended to align FMCs’ interests with investors’ interests, in that they require the asset manager to have at least Rmb10 million of its own capital in the fund for at least three years.
Market participants say the CSRC is quicker in approving these new types of funds and also allows FMCs to apply for more than one type of fund at once (for example, more than one index or bond fund at one time).
E Fund had submitted its CSI Universal Bond Index Fund for approval as a contract fund, but has since switched the application to one for a sponsored fund.
Liu Yiqian, a fund analyst at Shanghai Securities, notes: “This [sponsored fund] product structure, to some extent, convinces investors that managers will be more dedicated to running the fund. And it exerts some pressure on managers to be more prudent rather than overly aggressive.”
A sponsored fund must have a minimum IPO AUM of Rmb50 million to launch, well below the Rmb200 million required for contract funds. This appeals to smaller and newer FMCs, which often find IPO fundraising challenging in the current environment.
Tianhong FMC – with AUM of Rmb12.9 billion, ranked 42nd of 68 Chinese FMCs – was the first to apply for a sponsored bond fund on June 25. And Sinolink General, an FMC set up in November, submitted its application for a balanced sponsored fund on June 27.
As of July 13, 12 sponsored funds are waiting to be approved. Except for Sinolink General, they are all either pure bond or pure index funds. This suggests FMCs are still cautious about linking their own interests to more volatile equity funds, which require more active management.
Other sponsored funds include Penghua’s SME pure bond fund, Fullgoal’s 21-day cash-management bond fund, ICBC Credit Suisse’s 14-day cash-management bond fund and Bank of China Investment Management’s 60-day cash-management bond fund.
“From a portfolio manager’s perspective, it does not make much difference in terms of managing index funds in the format of sponsored funds or contract funds," says Liu. "But it matters to investors, as they feel managers will be more dedicated, as their own money is at stake. It may also be easier to market and promote such products to investors.”