Sinolink and General has become the 68th fund manager to receive regulatory approval to start operations on the mainland.
The Beijing-based company is expected to debut its first product – most likely a mainstream equity fund – early next year.
But with just Rmb160 million ($25 million) in registered capital, consultancy Z-Ben Advisors warns that the firm may need to return to shareholders for capital if it fails to register decent returns early on.
“Sinolink’s large customer base and above-average national brand recognition may make that first launch an interesting test,” notes Z-Ben.
Interestingly, the new entrant, whose majority shareholder is Sinolink Securities, had to wait four years to launch. This is chiefly because Sinolink Securities’ former majority shareholder, Yongjin Group, was investigated by the China Securities Regulatory Commission in 2008 and 2009.
This period saw a high degree of turnover at the firm, with Zhou Yahong, former assistant general manager and product manager, departing to Huashang FMC and Wu Fujia, another former assistant GM and head of research, also leaving, along with a number of analysts.
That comes despite the travails the industry is facing, with the average performance of qualified domestic institutional investor (QDII) funds down almost 19% to date in 2011.
The increase in FMC approvals is a new approach for CSRC and appears designed to foster a more competitive environment. Previously it was hesitant to permit entrants in adverse market conditions in recognition of pressure on profit margins.
One consequence of a hastened approvals process is that it creates more opportunities for foreign parties to gain access to China’s domestic markets.
Z-Ben points out that with many securities firms and trust companies in China interested in public listings, this will likely mean a large influx of new capital and many companies will want to deploy this as quickly as possible.
“The question of what parties to consider as partners will be critical,” finds Z-Ben. “FMC subsidiaries are a logical target, which means that potential partners for such ventures should be readily available.
“While many of the largest brokerages already have stakes in fund management companies, a significant number of regional operators have strong capabilities in specific geographic areas, and these institutions will likely be forced to expand their distribution capabilities, which can only benefit potential foreign shareholders of FMC subsidiaries.”