China was home to the 10 fastest growing fund houses in Asia Pacific in the year to September 30, largely off the back of flows into fixed income products, a trend reflected by E Fund Management.
The Guangzhou-based firm – the country’s fifth largest by assets under management – aims to capitalise on this demand by launching more products in the coming year, including a balanced fund in Europe and other hybrid strategies.
E Fund's AUM increased 95% to $85.8 billion in the year to end-September, making it the seventh fastest growing fund house in both China and the Asia-Pacific region. Chinese managers’ assets overall rise 73.4% year-on-year to Rmb10 trillion ($1.5 trillion).
E Fund’s growth was mainly driven by its fixed income business, comprising bond, money market and hybrid bond/equity funds, with institutional clients forming the bulk of its assets.
Indeed, the firm saw further strong growth in the fourth quarter of last year, resulting in its fixed income assets rising 140% to Rmb587.3 billion during calendar 2015 and accounting for 70% of its total Rmb820 billion in AUM as of December 31.
The growth came largely from existing mutual funds and separate accounts managed for institutional clients, said Ma Jun, E Fund’s head of fixed income, but new products also contributed. Last year, the firm launched two MMFs totalling Rmb9.4 billion as of end-2015, one Treasury bond index fund (Rmb200 million) and three hybrid funds (Rmb12.8 billion). Moreover, there were some flows into fixed income from E Fund’s equity products in the second half of last year, noted Ma.
The biggest part of E Fund’s client base is commercial banks, whose appetite to award external mandates is huge and growing, amid tightening regulation of wealth management products (WMPs), he said.
Now that it has been made clear that such products do not provide guaranteed returns and restrictions have increased in this area, banks have been forced to seek help from external firms to help manage their assets, Ma explained. This is because they must rely less on non-standard debt assets and more on traditional equity and bond investments.
Ma expects the rising trend for banks outsource their asset management to last for a long time and that E Fund will benefit from the shift. He forecasts that the firm’s fixed income assets will grow 30% annually over the next three to five years, suggesting it will grow by another 150% by 2020. The growth rate will be slower than the current level given the comparatively larger AUM base, Ma said.
As for new products, E Fund has no immediate plan to launch new pure bond funds in the next three years, he noted, but it will create principal-protected hybrid bond strategies and absolute-return-oriented hybrid funds, because of client demand.
In respect of international business, E Fund plans to launch a balanced fund in Europe this year under the renminbi qualified institutional investor (RQFII) scheme in a Ucits structure.
Some foreign clients are taking a wait-and-see approach towards renminbi assets in light of uncertainty around the Chinese currency, but that is likely to be a short-term issue, said Ma. “With stabilisation of the currency, investment returns of renminbi assets will remain very appealing. Overseas institutional investor demand for renminbi asset allocation will continue to rise.”
With regard to the mutual recognition of funds (MRF) programme, E Fund has submitted applications, but was not among the first three batches of fund houses receiving approvals.
Ma is sanguine about this. “We focus on serving institutional investors, so whether we were the first one to participate in the scheme is not very important,” he said, pointing out that E Fund sees MRF as a long-term programme.
E Fund will not “blindly” invest in foreign assets, but will focus on areas where it has good knowledge and capabilities, he added. The firm’s overseas fixed income investments are mainly dollar bonds issued in Hong Kong.