The new rules are "expected to introduce more than 50 new competitors to the mutual fund sector”, according to a report in the South China Morning Post, which noted that brokerages and insurers “with total assets of no less than 20bn yuan each (Rmb20bn, $3.24bn), will be eligible to sell mutual funds to the public” once the new rules come into effect.
Such institutions as mainland hedge funds “will also qualify to issue mutual funds if each of them has at least 2bn yuan of capital under management”, The SCMP noted.
The so-called Tentative Rules for the Management of Publicly Offered Securities Investment Fund Carried out by Asset Management Institutions – shortened to “the Tentative Rules” in the document explaining them – were unveiled by the CSRC on 18 Feb, following a consultation last year.
The rules essentially consist of some 18 “articles” which outline the qualifications that asset management institutions are expected to possess if they wish to market funds in China, the CSRC said.
Such institutions must also comply with the country’s existing Securities Investment Fund Law, as well as “relevant provisions of the regulations to implement such law” when carrying out the management of their funds”, the CSRC noted.
For example, entities seeking to market funds are expected to have at least three years of asset management experience with no regulatory violations during that period.
Drawing on the comments of those in the industry, the CSRC said, it designed the new Tentative Rules in such a way that they effectively “lower the threshold” under which security firms, insurance asset management companies and privately offered securities fund management institutions are permitted to “directly engage in the management of publicly offered funds”.
In unveiling the new funds management regime, the CSRC describes it as representing “an important initiative to implement the core messages of [China’s] Securities Investment Fund Law…and develop an open, inclusive and diversified wealth management industry”.
Also last week, the CSRC unveiled a consultation on another asset-management related matter, which it is calling its Tentative Administrative Measures for the Investments of Privately Offered Funds in Securities. It was described as seeking to regulate “the business activities of privately offered funds, protect the lawful rights and interests of investors, and [to] promote the sound development of the privately-offered fund sector”.
Aim to attract professional asset managers
In its analysis of the Tentative Rules, the SCMP noted that the CSRC believes China’s retail investors will benefit from having their investments handled by professional asset managers, rather than doing it themselves.
"Many of the more than 100 million retail investors on the mainland have lost their savings due to poor investment decisions made during roller-coaster rides on the market," the SCMP said.
"Institutional investors account for just some 14% of the total turnover on mainland stock markets, far less than the 50% to 60% share generated by such investors in Western markets."
At least 50 non-mutual fund institutions are expected to apply to issue mutual funds in China as a result of the new rules, the SCMP added, citing analysts’ estimates.
At present, China’s 77 mutual fund houses manage a combined 2.89trn yuan of funds that invest in stocks and bonds, according to the SCMP.