China International Fund ManagementÆs latest fund launch has been forced to allocate shares to more than 1.8 million individual investors as a consequence of new rules imposed by the China Securities Regulatory Commission.

The fund was initially nine times oversubscribed during its initial launch period and gathered RMB90 billion ($11.65 billion) in assets. This is more than double the giant RMB40 billion Harvest Fund Management IPO last December that capped A-share mania. It boggled minds that a mutual fund could raise $5 billion in a day.

(Shanghai-based consultancy Z-Ben Advisors has revealed that HarvestÆs massive IPO of last year û the Strategic Growth fund û has lost more than 28% of its assets under management in the first three months after launch. It had been rumoured that the fund might have lost up to 50% of its AUM. Typical fund launches would suffer redemptions of 30-40%, but usually after six to nine months; investors have been quick to sell units in the Harvest growth fund.)

In a process that closely resembles stock IPOs in Hong Kong, and because of the fund launch quotas imposed by the CSRC in an effort to cool down the nationÆs unbridled lust for the domestic stock market, CIFM has been forced to reduced its new launch to RMB10 billion, with the excess money returned to and the remainder divided up equally between 1.8 million applicants. Each applicant ended up with an allocation of little over RMB5,500 (US$712).

Mandy Wang, general manager of CIFM, admits that such a huge number of investors had left the company scrambling to administer the fund. ôIt is a headache to us,ö she comments.

This may be understatement: industry executives marvel at the crushing paperwork of closing half a million accounts. Wang would not comment on the costs involved. Obviously the fund manager has done well by raising RMB10 billion, once considered a huge number for the China market, but the CSRC quota has forced it to forgo considerable profits.

An industry insider acknowledged that administration costs would be high but adds that there is also a plus side to having so many accounts in a single fund.

ôThis is not the first time that assets have had to be apportioned equally,ö he says. ôIt means a huge amount of costs and work for back office systems. But on the plus side fund management companies are going to be learning a lot more about their customers. In the past when money has been collected by banks and brokers it was not easy to know who was buying your fund.ö

There can be significant differences in the level of work asset management companiesÆ back office systems are set up to create, the source suggested, and some that have not been recently upgraded might struggle to deal with such a large number of accounts.

China International Fund Management is as a joint venture between Shanghai International Trust & Investment Co. and JPMorgan Asset Management.