China's E-Fund Management closed capital-raising for its Shenzhen 100 ETF feeder fund last Friday, having attracted a total of Rmb19 billion ($2.8 billion) in a month since October 28. Meanwhile, rival asset manager Bosera yesterday announced that it has received approval to launch a Shanghai mega-cap ETF and feeder fund.
As a result of the new inflows, E-Fund now ranks as the second-largest fund manager in China, with Bosera and Harvest dropping to third and fourth respectively, notes Shanghai-based financial consultancy Z-Ben Advisors. Zhang Haochuan, senior analyst at the firm, attributes the success of E-Fund's products to "strong brand awareness and performance".
However, Bosera may not prove quite as much of a hit, one fund manager told AsianInvestor, since it is launching a new ETF rather than setting up a feeder for an existing ETF. Lack of a track record will hurt the fundraising results, he says.
"Demand in China for funds remains firmly intact, if perhaps heavily skewed towards products with a passive investment style," says Zhang. "And, for those fund managers with a following plus track record, demand can be significant."
The consultancy feels it is no great surprise that E-Fund was able to attract so much demand, citing the "stunning" 101% return posted by the original E-Fund Shenzhen 100 ETF year-to-date. "Add this to the ability to tap into the bank channel for new inflows (which feeder funds are designed to do)," says Zhang, "and it makes considerable sense to launch fundraising on this scale."
Moreover, not only was E-Fund's new ETF launch the industry's second largest for 2009, but the company can also claim the third-largest new launch, as the E-Fund CSI 300 Index Fund raised Rmb16.7 billion in August.
E-Fund's success highlights the advantage of having direct access to fund flows from the banking channel, says Zhang. When issuing an ETF without a feeder fund, assets can only be raised either from direct sales initiatives or from securities firms.
To tap into China's massive savings, fund managers must turn to the feeder fund, adds Zhang. Bank of Communications Schroders also recently demonstrated the benefits of this approach. The firm pulled in Rmb8 billion for its Shanghai 180 Corporate Governance ETF launch, nearly 90% of which came via the feeder fund.
Having completed the launch of the ETF feeder fund so quickly, E-Fund's sales and marketing team can redirect their full attention towards its first qualified domestic institutional investment (QDII) product offering. With China's State Administration of Foreign Exchange formally granting E-Fund $1 billion in quota in early October, E-Fund is ready to make its first offshore foray.
However, Z-Ben doesn't expect QDII fund demand to be anything like it was in 2007, and fund managers' QDII targets have become more modest as a consequence. E-Fund's QDII product even includes a $1 billion quota maximum, thus limiting access and, perhaps, "turning up the heat on buyers", says Zhang.
The consultancy had initially expected E-Fund's QDII product to raise around $500 million at launch, with the quota balance to be applied to separately managed accounts. "Given the massive success of E-Fund's feeder fund, however, a fast sell-out is now looking more possible," says Zhang.