The launch of China’s first national fund management association yesterday was welcomed as a positive step for industry development, although doubts were raised over its potential influence.
A host of senior managers from the nation’s 72 fund management firms attended the inaugural meeting in Beijing of the new China Fund Association (CFA), which will act as a sort of industry standards body.
“Such a self-regulatory organisation is necessary,” suggests Lin Yixiang, chief executive of TX Investment Consulting. “It will help the fund management industry to manage itself better and to develop. It will also help to establish discipline in the conduct of industry practitioners.”
Whether that will stretch to discouraging the rampant level of turnover that has blighted the industry in recent times is unclear. But the association is expected to tackle the key issues, including congestion within distribution channels and escalating market costs.
At present distribution of mutual funds is dominated by banks, whose trailer fees account for at least 50% of management fees and up to 90% for newer and smaller firms.
This has left FMCs in a relatively powerless bargaining position, and it is hoped that the CFA will be able to strike a balance between interested parties to reduce mutual fund selling costs.
In terms of the association’s management, Sun Jie has been named as chairman. He is the former director of investment fund supervision at the China Securities Regulatory Commission (CSRC).
Beneath him are two full-time vice-chairmen, Han Kang, who currently serves as deputy director of CSRC’s Shanghai bureau, and Cao Dianyi, a former director of CSRC’s Heilongjiang bureau. The official line is that the CFA is an independent body that is supported by the CSRC.
Further, the CFA will boast nine part-time vice-chairmen. Their number includes Fan Yonghong, who recently quit as general manager of the country’s largest asset manager China AMC.
Fan’s part-time status should enable him to pursue other professional pursuits, so speculation over his next destination will likely continue in domestic media. However, his CFA responsibilities would seem to rule out an overseas role, as had been mooted.
Importantly, the CFA will be dedicated to the fund management industry, which sets it apart from two existing organisations of a similar nature: the Securities Association of China (SAC), which was established in 1991, and the Shanghai Asset Management Association, set up in 2010.
In fact, the association will be carved out from the SAC to include relevant institutions such as FMCs, custodians, distributors, securities and futures exchanges, index providers and settlement firms.
Already there are more than 100 members, who are all required to pay fees to the CFA. For instance, a fund manager pays a registration of Rmb100,000 ($15,000) and an annual fee of 0.2% of the previous year’s revenue, with a minimum of Rmb20,000 and a cap of Rmb600,000.
However, hedge funds operating through a trust platform are not allowed to become members of the CFA, even though they have become significant players in the nation’s asset management industry. At the end of May these funds had a total AUM of Rmb200 billion– about 9% of China’s Rmb2.17 trillion mutual fund industry as at the end of 2011.
“I don’t think the membership should be restricted to financial institutions with licences related to mutual funds,” argues Lin. “It should welcome other players in the asset management industry, such as hedge funds and should not become just a club of FMCs, since its influence and ability to push forward the development of the asset management industry will be limited.”