Essence Fund Management has broken new ground in China after becoming the first FMC to be granted mutual fund and segregated account licences simultaneously from inception.
The firm, which is headquartered in Shenzhen, is the sixth fund manager this year to receive approval to set up from the China Securities Regulatory Commission (CSRC), and the 69th overall. It makes 2011 the busiest year for approvals since 2006.
Essence FMC has registered capital of Rmb200 million ($31.4 million) contributed by three shareholders: Essence Securities (49%), Minmetals Investment (36%) and China Guangdong Nuclear GFC (15%).
Wang Lianzhi, vice-president of Essence Securities, will lead the new FMC as its general manager.
The company says that its core management team – including research and investment, sales and marketing, compliance, operations and IT – are all in place.
But as more players have entered the market, China’s mutual fund industry has become an increasingly competitive arena, making life especially difficult for entrants lacking track record.
“Distribution, however, remains a problem yet to be solved for Essence, as it is the most challenging difficulty for any newly founded FMC in China,” notes Shanghai-based consultancy Z-Ben Advisors.
It adds: “At present, as the speed of new product offerings is critical to AUM growth and asset retention, some new FMCs are also rolling out new products quickly, burning money on distribution before they are able to generate any decent revenue.”
But having licences for both mutual funds and segregated account businesses means that at least Essence will have an additional channel to grow AUM rather than rely solely on banks to push retail funds.
Effective from October 1, the CSRC released new rules governing FMCs’ segregated account businesses, abolishing threshold requirements on operational experience and AUM and reducing minimum AUM requirements for each segregated account to Rmb30 million, from Rmb50 million. It potentially allows smaller FMCs to conduct segregated account business.
The CSRC has quickened its rate of approvals this year, having given the go-ahead to five other FMCs: Fuanda, Caitong, Founder Fubon, Changan and Sinolink General.
Following two boom periods – 1998-99 and 2002-05 – the securities regulator slowed its approval process for new FMCs from 2006 onwards.
The next two years, 2007 and 2008, saw just one and two established, respectively, while the global financial crisis brought approvals to a halt until last year, when three new companies joined the fray.