Beijing-based GFund Management and Tianjin-based Tian Hong Asset Management last week became the first batch of fund companies to win approval from the China Securities Regulatory Commission for self-seeded funds.
Market observers believe the funds will be highly favoured by local investors as the idea of self-seeding could keep investors’ interests aligned with the goals of fund companies.
According to the CSRC’s records, GFund submitted an application for its GFund Flexible Allocation Mixed Self-Seeded Fund on June 27, while Tian Hong did so for its Tian Hong Bond Self-Seeded Fund on June 25.
It only took about one month for the self-seeded funds to get approved – much faster than the usual fund approval period of six months.
The CSRC released the revised Measures for the Administration of Operation of Securities Investment Fund on June 21,and allowed fund companies to put their own money in new funds that they launch.
The CSRC says fund companies can file with the CSRC and obtain a certificate of capital registration for a self-seeded fund if that fund will have more than Rmb10m ($1.52m) of assets coming from the fund company, company shareholders or senior managers. That seed money will be locked-in for three years.
The minimum required asset size of a self-seeded fund is Rmb50m, according to the CSRC. That compares to the Rmb200m minimum requirement for regular retail funds.
GFund’s self-seeded fund, the company’s first product since its establishment in February, will mainly invest in Chinese equities.
The company says it will inject more than Rmb10m of capital into the fund, mainly from shareholders. It will also encourage fund managers and company executives to subscribe.
GFund has a registered capital of Rmb160m. It employs 50 people in its Beijing office, of which 20 are in the research and investment group.
Tian Hong’s self-seeded fund will invest in fixed income securities. The company will inject Rmb10m into the fund.
The approval for the fund came after the company received a capital injection from its shareholders in March. Tian Hong is a small fund company with eight retail funds and registered capital of Rmb180m.
According to the CSRC’s records, there were 14 self-seeded funds still waiting for regulatory approval as of July 20; two money market funds, four bond funds, five index funds and three equity funds. Beijing-based China Asset Management Company is behind the proposed index funds.
Some observers believe self-seeded funds should focus on equity investments instead of lower-risk products such as bonds and money market securities, because self-seeded funds are designed to protect the interests of investors.
"Investors’ complaints are mainly from the losses of equities funds but not fixed income funds,” says Wang Qunhang, Beijing-based director at the fund research centre of Huatai United Securities. “Now we see an increasing trend of fund companies steering clear of self-seeded funds investing in equities to avoid losses.”
The lower minimum size of a new self-seeded fund could help small fund companies launch new funds more easily than before. However, according to the CSRC, self-seeded funds with less than Rmb200m of assets after three years of establishment will need to be terminated.
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