ChinaAMC taps Russell to develop FoFs

Multi-asset solutions are the new rage among China's mutual fund companies following deregulation and disappointment in single-asset products.
ChinaAMC taps Russell to develop FoFs

China Asset Management Company has teamed up with Seattle-based Russell Investments to develop funds of funds.

Multi-asset products are viewed as an important way for mutual funds to develop innovative products, said Rachel Wang, Morningstar’s director for manager research in Shenzhen.

New products should also help the industry attract new mandates amid declining bond yields and investor jitters following losses in equities last year, industry executives said.

The government has been encouraging this move by revoking implicit guarantees for wealth-management and trust products, and more directly by the China Securities Regulatory Commission’s decision last month to allow fund companies to manufacture FoFs.

However, to get started, fund houses need to demonstrate they know how to manage these new products. Some are setting up internal teams, but ChinaAMC decided to leverage the experience of overseas partners.

“We lack track records for developing funds of funds for retail investors,” said Zhou Huan, senior vice president for sales at ChinaAMC. “That’s why we want to team up with an experienced overseas partner.”

One reason Russell won the deal was because of its local presence, thanks to its having established a wholly foreign-owned enterprise (WFOE) last year in Shanghai. Zhou said this gave ChinaAMC the confidence it could interact with its partner on the ground, rather than having to struggle with communicating across time zones.

Multi-asset move

Russell, which manages $244 billion, opened it WFOE last March and exited its joint venture private fund firm with Ping An group two months later. The former JV had launched China’s first product using a multi-manager or manager of managers (MoM) model for wealthy and institutional investors.

ChinaAMC, China’s second-largest fund house, manages Rmb572 billion ($85 billion) of assets. It has also partnered with Boston-based PanAgora Asset Management to develop risk-parity strategies, investing in individual securities, as part of the firm’s push for multi-asset capabilities.

ChinaAMC and Russell will manufacture a platform that invests in 78 existing mutual funds they manage.

Zhou said ChinaAMC puts multi-asset development as the firm’s top business priority, due to the changes of mainland asset performance and policy changes.

Institutional mandates

Fund groups are expected to pitch their FoFs and multi-asset solutions to domestic institutions such as commercial banks and life insurance companies, which are eager for high yields, said consultancy Z-Ben Advisors in a research note on October 12.

It noted that institutional investors’ allocations to domestic bond funds has tripled in the first half of the year, from $3 billion to nearly $10 billion. Likewise, their investments in balanced funds rose from $1.2 trillion to $3.2 trillion.

Z-Ben said such exposures are less attractive than what multi-asset solutions may offer, which leads it to predict big inflows into the new products – provided Chinese fund management houses can demonstrate real expertise to their domestic clients.

See AsianInvestor's October print edition for more in-depth coverage of China's embrace of funds of funds and multi-asset products.

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