JPMorgan Fleming Asset Management?s Sino-foreign joint venture is set to launch its first open-ended fund. Last month, the joint venture was given approval from the China Securities Regulatory Commission for the launch. This approval also marked the official founding of the global asset manager?s joint venture with Shanghai International Trust and Investment Company, called China International Fund Management.
First launch
Everbright-Prumerica, a joint venture between Everbright Securities and US-based Prumerica Financial, is also set to launch its first open-ended fund, although details are yet to be released. These two joint ventures will be the ninth and tenth such set-ups to launch open-ended funds. Four further managers have received approval to launch new products and in June five new funds completed their fund raising.
China International Fund Management hopes to list the fund in August. The CIFM China Advantage fund will invest around 30% to 80% in China A shares, 20% to 50% in the China bond market and 0% to 20% in cash. Peter Alexander, founder of independent consultancy Z-Ben Advisors, says: ?If the markets continue to show weakness ? and adding that the summer season is a difficult time to raise funds ? I would hazard a guess that they should raise between Rmb1 billion and Rmb3 billion [$360 million]?.
In the first quarter of this year, 11 products were launched, raising $9.2 billion, in one of the most prolific periods for open-ended fund launches. Alexander says: ?Most agree the trend of billion dollar-plus launches is unsustainable, but at the same time many expect there has been a shift in the average product launch from $350 million to a $500 million to $700 million range.?
Alexander feels the total of assets raised is likely to decline in the near term and that redemptions might tend to rise in the coming months. In May, $2.33 billion in total assets was raised, a 45.4% drop on April and 67.5% down on March (see chart).
Redemptions have been an issue for fund managers in China because of the lack of investor familiarity with the characteristics of mutual funds (Euromoney March 2004).
Sino-foreign joint ventures are striving to distinguish themselves from domestic players who benefited from the placement of Rmb14 billion from the National Social Security Fund (NCSSF) in 2002.
The playing field is still dominated by the original 10 fund managers in China in terms of new products offered and assets raised. The original 10 had close to 54% of total industry assets under management as at the end of April this year, according to Z-Ben.
However, Sino-foreign joint ventures have managed to grow their share from nothing a few years ago to 12.5% today. ?With more joint ventures going to market this year, it is expected that the joint ventures will command 20% to 25% of the total market by year-end,? says Alexander.
In addition, joint ventures, alongside domestic managers, could stand to benefit from the additional money slated for allocation to fund managers by the NCSSF. The current asset allocation mandate is for 5% of the fund to be invested in equities, with the possibility that it will be increased to 15%. At the end of 2003, the fund had Rmb132.5 billion under management.
Alexander says: ?[Joint venture] ABN Amro Xiangcai is pushing hard, but I would also consider Merchants [ING?s joint venture] as a real contender.? He adds: ?Look for at least one joint venture to be awarded a mandate.?