Chinese asset managers have received approval to manufacture fund-of-fund products, with a number already building capabilities for that purpose.
The China Securities Regulatory Commission (CSRC) unveiled the new rules this Friday evening (September 23) local time, allowing managers to launch FoF products in a mutual fund structure. The regulations took effect on September 11.
Fund houses have moved to build multi-asset teams in the past two months, after the regulator issued a consultation paper on the FoF proposals in June.
At least seven firms have told AsianInvestor that they are building new multi-asset teams, including Bosera, China International, China Southern, Penghua, Tianhong and Yinhua. Meanwhile, China AMC struck a partnership with Boston-based PanAgora in July to build multi-asset risk-parity capabilities with an eye on developing FoF products.
The rules require that asset managers must set up dedicated investment teams for FoFs, in order to prevent conflicts of interest between funds.
FoFs can hugely benefit investors by leveraging asset managers’ fund-selection capabilities to meet multi-asset allocation needs, thereby providing risk diversification, said Deng Ke, a CSRC spokesperson. These products can also help drive the investment industry’s development, he noted.
Targeting commercial banks
Asset managers see commercial banks as potential clients for FoF products, as the latter group look to boost returns for their own wealth management products (WMPs). Chinese banks started to connect their WMPs to fund firms’ bond products this year, but managers expect them to seek higher returns from FoFs amid declining onshore bond yields.
Under the FoF rules, fund houses must invest at least 80% of a product's assets in domestic mutual funds with at least a one-year track record, including feeder funds for exchange-traded funds. Each holding in one single fund should not exceed 20% of that fund's total value.
FoFs represent the second newly approved type of mutual funds in recent years, after the green light was given for commodity futures products in December 2014.
An in-depth feature on FoFs will appear in the upcoming October issue of AsianInvestor magazine.