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New fund products may get test run next year

Time: 2006-12-29
City: Shanghai
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CHINA is considering a plan to allow mutual-fund managers to set up quasi-private equity products to tap growing demand by big institutions, industry sources said yesterday.

A proposal to allow fund managers to pool client capital through non-public sales has been sent by the country's securities watchdog to the State Council, China's Cabinet, according to people familiar with the matter.

The so-called "special account asset-management scheme" by fund ventures works like a private-equity fund, which can help institutional investors better arrange their idle funds and shore up returns, the sources said.

"It will greatly expand fund companies' business scope and is the exact thing regulators hope to do," said a Shanghai-based fund executive. "Nearly every fund firm is now preparing for the new business."

The sources were divided on a timetable, however, with some predicting a date as early as the first quarter of next year for the scheme's launch, while others estimated it would occur some time late in the first half.

Trial likely

"Private equity is relatively new to Chinese mutual-fund firms, and regulators might need time to draft rules to curb risks," said a source close to the situation. "A trial program is very likely to be launched to gauge market response."

Besides US$100 billion in assets under management by mutual funds, Chinese fund companies also help manage the country's 230 billion yuan (US$29.4 billion) in social-security funds and about 100 billion yuan in corporate annuities.

China's stock market indexes have more than doubled this year, making equity-invested funds increasingly appealing to retail investors.

So far this year, stock-focused funds have raised more than 350 billion yuan in investors assets, tripling the sector's size from the start of the year.

The sources noted that any private-equity program is likely to be vetted by the securities regulator on a case-by-case basis, with investment options tightly supervised.

A quota system may also be introduced initially to boost regulatory controls of the sector, they said.