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Written by Samuel Shen and Vidya Ranganathan
SHANGHAI/SINGAPORE (Reuters) – Under intense pressure from authorities, Chinese fund management companies are launching equity funds primarily funded by their own funds as they seek to revive an ailing stock market. An increasing number of cases are being raised.
China’s securities regulator is urging fund managers to prioritize launching equity products as authorities scramble to revive the stock market from a five-year low.
In recent informal guidance, regulators have ordered some fund managers to make new It is necessary to launch at least four equity funds before launching a single bond fund.
Torn between guidance from regulators and investor disinterest in stocks amid a sluggish economy, mutual fund companies are increasingly creating so-called “sponsored funds.”
Under Chinese regulations, fund management companies can launch sponsored funds with as little as 10 million yuan ($1.39 million) in seed money, which must remain in the fund for three years.
This compares to the usual requirements for new funds to have at least 200 million yuan (approximately $28 million) in assets and 200 investors before launch.
“Fund performance is ugly and clients are suffering losses, so asset managers have to take out money out of their own pockets,” said hedge fund manager Zhang Kaihua. “What else can I do?”
The number of sponsored equity and balanced funds that invest in both stocks and bonds rose nearly 40% to 122 last year, according to fund consultancy Z-Ben Advisors.
Despite these outflows, China’s blue-chip indexes have fallen further into the new year, casting doubt on the effectiveness of a number of policy measures announced by regulators since the middle of last year.
Due to the market stalemate, Chinese funds disappeared as quickly as they were created. Last year, a total of 148 equity and balanced funds were forced into liquidation because they were too small to be viable, the most in five years.
Fund managers are under pressure to launch equity funds, but “it’s almost impossible to raise money in such an environment,” said a Shanghai-based portfolio manager preparing to launch a sponsored fund.
“We have no choice but to invest with our own money first,” said the fund manager, who requested anonymity.
Lei Meng, China equity strategist at UBS Securities, said anemic fund raising and a sluggish stock market “create a vicious cycle that undermines investor confidence in the long term.”
lower threshold
The sponsored fund will incur regular management fees and will be discontinued after three years if it does not have the required 200 million yuan in assets.
According to Z-Ben Advisors, top sponsored fund managers include China Asset Management, E-Fund Management, China Southern Asset Management and Fullgoal Fund Management.
Wanjia Asset Management established a 10 million yuan fund this month to invest in pharmaceutical stocks with mostly its own funds, regulatory filings showed.
Galaxy Asset Management launched a new material equity fund in December after securing just four participants, according to filings. In the end, Galaxy contributed 10 million yuan, or 98.9% of the fund’s assets.
China Southern Asset Management declined to comment. Wanjia, Galaxy and other sponsored fund managers did not immediately respond to requests for comment.
Bond funds are more popular among investors, but regulators are slowing the review of applications for fixed income products and rushing to approve equity funds instead.
“Once we get the green light to launch an equity fund, we don’t want to waste it,” said another fund manager, who also declined to be named. “That’s also a condition for launching a bond fund.”
Another reason for the proliferation of sponsored funds is the expectation by managers that investors disappointed with the performance of existing funds will seek new opportunities and, in turn, breathe new life into their businesses. be.
“Investors have lost money in existing funds, causing large redemptions and fund liquidations,” hedge fund manager Chan said. “With a new fund, portfolio managers can start fresh.”
(1 dollar = 7.1961 Chinese Yuan)
(Reporting by Samuel Shen in Shanghai and Vidya Ranganathan in Singapore; Additional reporting by Jason Xue; Editing by Jamie Freed)
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