Two more fund management companies have finally cleared the procedures they need to gain approval from the China Securities Regulatory Commission, following assessment meetings. BNY Mellon Western Fund Management and Zheshang Fund Management may receive the official green light to start operations as early as June.

However, the possibility of additional approvals for more fund management companies (FMCs) this year is "somewhat remote", says Shanghai-based consultancy Z-Ben Advisors. Some of the domestic firms that started their preparation around the same time as BNY Mellon Western, for example, came under investigation for alleged misconduct. Aviva Global Investors, for its part, decided to change its local partner in mid-2009. The remaining firms simply started their preparation less than a year ago.  

Hu Bin, a former executive at BNY Mellon, is chief executive designate at BNY Mellon Western. Zhou Yifeng, the former deputy general manager of Dacheng FMC, is slated to run Zheshang FMC. Z-Ben says the firms' maiden products are expected in the fourth quarter.

"We continue to look forward to receiving official approval for our joint-venture company," says a BNY Mellon spokesperson. "BNY Mellon is committed to further growth in China, expanding our staff in China, preparing the foundation for offering segregated and pooled fund management to domestic investors and awaiting our final quota from Safe [the State Administration of Foreign Exchange] for our QFII [qualified foreign institutional investor] licence."

BNY Mellon Western and Zheshang started preparatory work towards gaining their approvals as early as mid-2007, in line with the expected three-year timeframe needed to set up a greenfield FMC, says Z-Ben. BNY Mellon inked a joint-venture deal with Xi'an-based Western Securities in November 2007, with the firms holding 49% and 51% stakes respectively. Once they formally launch, the total number of FMCs in China will stand at 62.

Zheshang FMC, led by Hangzhou-based Zheshang Securities, registered its commercial entity in May 2007 and started recruiting in January last year. Zheshang FMC also boasts Tonglian Asset Management, the investment management arm of one of China's leading conglomerates, Wanxing Group, as a minority shareholder.

Z-Ben says newly established FMCs may need to reach Rmb25 billion in assets under management in order to break even, and that could take up to three years. For FMCs that want to develop their cross-border businesses -- that is, the qualified domestic institutional investor (QDII) and QFII schemes -- and other non-core businesses in tandem with their mutual-fund business, the breakeven AUM could be as high as Rmb32 billion.

The assessment meetings for BNY Mellon Western and Zheshang came 18 months after Minsheng Royal FMC secured approval in October 2008. The delay is partly down to the CSRC's requirement that FMCs with non-compliant shareholders restructure last year, says Z-Ben.

There are around 15 more firms in the pipeline, 10 of which have an affiliation with a foreign asset manager, including the likes of Bank of Nova Scotia's JV with Bank of Beijing, F&C Asset Management with Huaxia Bank, UOB Asset Management with Ping An Trust, Mirae Asset with Huachen Trust and Taiwan's Fubon Financial Group with Founder Securities.