Assets in China’s funds industry have hit a new high, after months of blistering growth propelled by an equity bull market and allocation changes.

Growth is at its highest for eight years, and mutual fund assets are expected to top Rmb10 trillion ($1.6 trillion) by the end of this year if the A-share market continues to boom.

But the private fund industry is leading the way, with asset values more than doubling in value this year.

Mainland China’s funds industry assets grew by 62% in the first five months of this year to reach Rmb7.4 trillion at the end of May, according to data released this week by the Asset Management Association of China (Amac). Assets increased by Rmb1 trillion and Rmb1.2 trillion in April and May respectively. The figures were based on data from China’s 96 licensed mutual fund managers and their 2,108 products, excluding institutional segregated accounts.

During the last A-share bull market, China’s mutual fund industry saw year-on-year asset growth of 285%, rising from Rmb850 billion at the end of 2006 to Rmb3.3 trillion at end-2007. However, asset values have been volatile since then as the A-share market also peaked in 2007. It wasn’t until February 2014 that the industry surpassed its late-2007 peak, due to the popularity of money market funds (MMF) like Yu’EBao, which launched in mid-2013.

The key driving force behind the asset growth over the first five months of this year has been balanced funds, which grew 254% to hit Rmb2.1 trillion, while MMF assets grew by only 22% to reach Rmb2.5 trillion at the end of May. The relatively lacklustre MMF growth this year contrasts with its 150% surge during 2014.

China’s CSI300 index, a broad equity benchmark of Shanghai and Shenzhen stocks, has soared 43% this year as of yesterday; but most rallies happened in March and April when the index jumped by 13.4% and 17.3% respectively. 

Ivan Shi, research manager at Shanghai-based consultancy Z-Ben Advisors, said the growth has been mainly driven by equity market performance and Chinese households switching their asset allocations to focus on equities.

“There were significant net inflows into balanced funds during April to May [after the equity soared significantly] - they are equity-centric funds but allow fund managers to have larger flexibility in allocations,” he said. “Equity funds are required to allocate at least 80% in equities, meaning less flexibility in a volatile market.”

Aside from equity price increases, most of the contribution to asset growth has come from new fundraising, a traditional model Chinese fund companies use to grow their assets. In total, Chinese fund companies launched 333 new funds in the first five months of this year, raising Rmb840.5 billion – this exceeded the Rmb407.4 billion raised by the industry during the whole of 2014. A total of 122 funds were launched in May, raising Rmb330 billion; of these, 77 were balanced funds which raised Rmb270 billion, representing 82% of the new fundraising, according to Z-Ben.

January Sun, a fellow Z-Ben analyst, noted Chinese investors’ habit of buying new funds and selling old funds still existed, as evidenced by outflows of Rmb72.6 billion from old equity funds and fundraising of Rmb67.9 billion in the first quarter. She added that balanced funds enjoyed positive organic inflows of Rmb54.2 billion and new fundraising of Rmb118.9 billion in the first quarter. 

A total of 184 out of 468 actively-managed equity funds and 69 of 669 active-managed balanced funds in China have generated returns exceeding 100% this year as of yesterday, according to Morningstar. The top-performing balanced fund was managed by Shenzhen-based Baoying Fund Management, which has returned 216.6%, while the top-performing equity fund was managed by Shanghai-based Fortune SG Fund Management, which returned 200%.

The asset growth is even faster in the private funds industry. Registered private securities funds’ total assets grew 135% in the first five months of this year to reach Rmb1.1 trillion at the end of May. They comprised 5,067 managers and 7,487 funds, compared to only 1,438 managers and 3,766 funds at the end of 2014, the Amac data revealed.

These are China’s equivalent of hedge funds, which are usually long-only managers maintaining a different fee structure and tapping high-net-worth individuals with a typical minimum investment of Rmb1 million. China’s mutual fund companies have seen an exodus of talent as individuals move into the private segment by setting up their own firms.

“Another factor is Chinese households are switching asset allocation away from bank savings,” Shi noted. According to data from the People’s Bank of China, household savings declined by Rmb441 billion last month, which is not a typical time of the year for a fall in savings.

Peng Gan, Baoying Fund’s star fund manager, said: “The market is in the initial stage of asset allocation changes - people are moving their money from bank savings, wealth management products and real estate investments into equities.”

Z-Ben’s Shi added that China had never experienced mutual fund inflows on this scale.

“The mutual funds asset growth of Rmb1 trillion each month has never been seen in the asset management industry. It is even faster than trust companies’ asset growth during 2012-2013 when money flowed into high-yielding trust products and bank wealth management products,” he said.

“If A shares do not have a big correction for the rest of the year, the mutual fund industry’s assets are expected to reach Rmb10 trillion by the end of 2015.”