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Fund managers in China are increasingly launching equity funds that are majority self-funded, becoming known as “sponsored funds.”
The growth of these “sponsored funds” is due to tremendous pressure from authorities to help revive the country’s dismal stock market.
China’s securities regulator Pressing fund managers to prioritize launching equity products They are desperately trying to revive the stock market, which has fallen to a five-year low.
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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 these “sponsored funds.”
Seed capital is only $1.4 million
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 their own money,” 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.
148 funds to be liquidated in 2023 amid ‘vicious cycle’
The market stalemate caused Chinese funds to disappear 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. Ta.
“We have no choice but to invest with our own money first,” said the fund manager, who spoke on condition of anonymity.
Lei Meng, China equity strategist at UBS Securities, said anemic fund raising and a sluggish stock market “caught in a vicious cycle and eroded long-term investor confidence.”
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.
Some of the top sponsored fund managers include: China Asset Management CompanyE Fund Management Co, China Southern Asset Management Co., Ltd. full goal fund managementaccording to Z-Ben Advisors.
Banka Asset Management Co., Ltd. This month, the company set up a 10 million yuan fund to invest in pharmaceutical stocks almost entirely with its own funds, according to a regulatory filing.
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 process of reviewing applications for bond products and rushing to approve equity funds instead.
“Once you get the green light to launch an equity fund, you 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 managers’ expectation that investors disappointed with the performance of existing funds will seek new opportunities and, in turn, breathe new life into their businesses. .
“Investors have lost money in their existing funds, causing large redemptions and fund liquidations,” said Zhang, a hedge fund manager. “With a new fund, portfolio managers can start fresh.”
- Reuters with additional editing by Jim Pollard
See also:
China boosts equity funds to shore up sluggish stock market
Second shadow bank shaken by China’s real estate crisis
China to investigate troubled shadow bank with $64 billion in debt
China lowers stamp duty on stock transactions from Monday
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