China fund management firms lose Rmb500 billion in 2011

A-share market turbulence hit home in China's funds industry last year. Large firms suffered the heaviest losses, but also collected the most in management fees, new data reveals.
China fund management firms lose Rmb500 billion in 2011

China’s mutual fund industry suffered a loss of more than Rmb500 billion ($79.4 billion) last year, with A-share market turbulence damaging the bottom lines of fund management companies.

The Shanghai Composite Index sank 22% in 2011, and the unwritten rule was that the larger the fund management company, the heavier the loss.

In total, 18 FMCs recorded losses of more than Rmb10 billion, with China AMC at the top of the losers list with a Rmb43.7 billion loss, followed by E Fund (Rmb34.7 billion), Harvest (Rmb28.7 billion), and Guangfa (Rmb25.2 billion).

According to Wind Info, a Shanghai-based information provider, 812 out of 970 mutual funds suffered losses over the year, led by equity funds (-Rmb314.7 billion) and balanced funds (-Rmb152.3 billion).

Harvest CSI 300 LOF, China’s largest mutual fund with Rmb27.1 billion in assets under management as at March 29, was worst hit individually, losing Rmb7.35 billion.

The only pooled fund vehicles in the black for the year were money-market funds and principal guaranteed funds, with the former making an overall profit of Rmb5.8 billion and the latter Rmb25.6 million.

Meanwhile, Wind Info data shows that despite the losses, 64 FMCs still managed to collect management fees of Rmb28.9 billion in total, a marginal 4.8% lower compared with 2010.

But clearly the bear market polarised the revenues earned by large companies and small and new players last year.

Seven FMCs collected over Rmb1 billion in management fees, including China AMC (Rmb2.5 billion), Harvest (Rmb1.7 billion), E Fund, China Southern, Guangfa, Bosera and Da Cheng. The top 10 collected Rmb13.4 billion in total, counting for 46.5% of the whole industry; however, the 14 smaller companies only managed to accrue Rmb606 million collectively.

Meanwhile, large fund management firms evidently have more bargaining power with banks, the key distributors.

According to TX Consulting, China AMC, Harvest, Bosera and China Southern shared an average of 14% of their management fees with banks; by contrast, small and new firms such as Xinhua, BNY Mellon Western, Morgan Stanley Huaxin and Fuanda, paid 40% in trailer fees.

A plethora of new fund launches last year (211 in total) also put banks in a stronger position in terms of bargaining for fees. FMCs paid a total of Rmb4.7 billion in trailer fees to banks, equating to 16.4% of their management fees – up by Rmb100 million or 1.1% on 2010.

But despite the difficulty of breaking into China’s mutual fund industry, new companies are clearly still eager to enter the market. At last count, a total of 71 FMCs had obtained a licence from the China Securities Regulatory Commission.

The latest addition was Huachen Mirae, a Shanghai-based joint-venture formed by Huachen Trust (40%), Mirae Asset Investment (25%) and Buchang Pharmaceutical  (35%), with total registered capital contributed of Rmb200 million.

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