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Fund management biz beckons banks

By Bi Xiaoning (China Daily)
Updated: 2009-07-16 11:08

Brochures of new funds at a bank in Beijing. More than 10 new firms have sought CSRC approval to float unit trusts. [CFP]

The stock market rally, which began early this year, has been propelling banks and other financial institutions to jump onto fund management bandwagon.

More than 10 newly established fund management companies have sought approval from the China Securities Regulatory Commission to market unit trusts to investors.

These fund management companies are different from the existing firms on account of their parentage. Most of the firms are owned, at least partly, by domestic or foreign banks. Similarly most of the fund management companies that are in operation now can trace their roots to stock brokerage or other investment businesses.

Among the new applicants is the newly established Shenzhen-based joint venture between China's Ping An Securities and Singapore's United Overseas Bank Ltd. The fund management venture of Western Securities and Bank of New York Mellon is another firm waiting for approval.

COFCO Ltd and Morley Fund Managers of Britain have also established a fund management company in Shanghai that has also sought a license

Bank of Beijing is planning to set up a joint-venture fund management firm with Canada-based Bank of Nova Scotia. Huaxia Bank is planning a tie-up with Britain-based F&C Asset Management, while Industrial Bank has tied the knot with France-based Natixis Bank.

The expected large-scale participation of banks could have a far-reaching impact on China's fledgling fund management business that is widely seen to have lagged behind the explosive growth of the capital market in the past few years.

Latest figures from Fund Research Center of China Laxary Securities showed, as of the end of June, the investment from stock-related funds occupied about 20.59 percent of the A share market capitalization, while the proportion was about 28.83 percent at the end of last year and 32.52 percent at the end of 2007.

The stock market crash in 2008 had sparked numerous complaints from investors about the professionalism and business strategies, including the fee charging system, of the fund management industry. Stock analysts expect the entry of the domestic banks in joint ventures with foreign fund management firms would help inject new ideas and practices.

Although domestic banks are relatively new to the fund management scene, they have played a key role in the growth of the industry by acting as sales agents of investment funds. In fact, banks are the most important distribution channels for Chinese investment funds.

The fund management industry came into being in 1998. The business started taking off in 2002 and by 2005 the number of fund management companies had doubled to 49.

Related readings:  CBRC tightens regulation on wealth management investment  Bank wealth management products weather the storm  Private banking catching on in China  Foreign banks eye nation's growing wealth

So far, there are 60 companies in the fund market and nearly 33 of them are foreign-backed joint ventures. If all the 10 fund management firms are approved, the total number of companies in this industry will reach 70.

"Once approved, these involved domestic banks could enjoy the enlarged investment channels through the new fund management companies. They could also invest on the equity market, " said Li Daxiao, director of research at Yingda Securities.

To control risks in the banking system, China Banking Regulatory Commission (CBRC) recently prohibited banks' financial products to invest in stocks on the secondary market, stock-related securities investment funds or unlisted companies' equity.

Industry experts feel that more players would enter the business once the joint venture minority ownership requirements are changed.

According to a recent survey by PricewaterhouseCoopers (PwC), the number of joint venture fund managers would exceed 50 by 2012, while the number of domestic companies is expected to reach 40.

According to statistics, 37 stock-related funds were established this year, raising about 111.89 billion yuan ($16.38 billion) of capital. In July, about 20 financial products and funds are expected to add 63 billion yuan of new capital.

Buoyed by the stock market rebound, six fund managers saw their assets under management reach 10 trillion yuan. In the bull market of 2007, six fund managers joined the "10-trillion-yuan club", while the sluggish market in 2008 saw the number of industry heavyweights shrink to four.