Beijing-based CreditEase’s screening process for fund managers is so rigorous that the approval rate is only around 2%, its head of wealth management products told AsianInvestor during a discussion about the group's selection process.

Hou Lin said Chinese peer-to-peer lender's wealth management platform had partnered with more than 200 fund houses, of which about 60% were domestic and 40% overseas. CreditEase focuses on offering high-net-worth individuals ways to invest into alternative investments. 

“There are many parameters in manager selection. With venture capital or private equity fund of funds, the emphasis is on the composition of the manager’s team, including its stability and the background of its founder and partners," she noted.

“We identify the focus area of their investments and how they conduct investments. We also talk to related third parties, such as their invested companies, to understand how they make judgments of investable projects, as well as their past limited partners [LPs, or other investors into a fund].”

Most of the wealth management firm’s fund-of-fund (FoF) leaders have FoF management backgrounds or direct investment experience, so they know many of the managers already, added Hou.

Over half of the almost Rmb100 billion ($15 billion) CreditEase had in new assets under management as of end-2017 is invested into FoFs of venture capital (VC), private equity (PE), real estate and hedge funds.

"There are a large number of capital market managers more than 10,000 in mainland China alone], so it’s a big project to identify the good ones,” Hou added.

CreditEase first identifies a capital market strategy and screens the relevant managers by their investment durations, individual managers' experience and the funds’ past performance to come up with a list. That is followed by detailed due diligence on the fund managers, including their risk management.

"VC/PE and real estate FoFs have long investment horizons, so we won’t replace managers much. But for capital market FoFs, we review managers at least once a month or even daily if the market is in a volatile period," Hou added.

Starting out as a peer-to-peer lending platform in 2006, CreditEase gained licences to sell mutual funds, trust and insurance products in mainland China in 2012.

It added an asset management licence in Hong Kong in 2013, and has since established operations in Singapore, New York, Washington DC, Silicon Valley and Israel.

This is an extract from a longer interview published in AsianInvestor's February/March issue.