CSRC caps new funds to cool demand

PUBLISHED : Tuesday, 06 November, 2007, 12:00am
UPDATED : Tuesday, 06 November, 2007, 12:00am

Latest move to increase risk management

The mainland securities watchdog has imposed new restrictions limiting the scale of new funds launched by fund management companies, in an attempt to cool demand for overseas investments through qualified domestic institutional investor (QDII) scheme products.

'For funds that are newly launched, split or shifted from closed-end to open-ended format, their respective fund management companies or agents should maintain their fund size as promised to investors for six months,' Xinhua reported yesterday.

The latest policy set out by the China Securities Regulatory Commission is the first such move since it advised fund houses to strengthen risk management of individual funds in May.

The policy will prevent oversubscribed mutual funds from being increased in their first six months and also act against misleading advertising encouraging investors to rush their money into new products.

'I have seen some fund houses market their products improperly, with misleading slogans such as 'For sale for only one day. Subscribe quickly now'. That is not true for open-ended funds, which can be subscribed to on any single day,' a CSRC official was quoted as saying.

The mainland's 341 mutual funds had a combined net asset value of 3.31 trillion yuan at the end of October, an almost fourfold increase this year, Xinhua said. No new funds have been sold since September.

Mainland investors are snapping up mutual fund products after the CSRC allowed fund houses to package them for investing overseas under the QDII scheme. The funds have been betting on Hong Kong shares, particularly those with discounts to their mainland counterparts.

China Southern Fund, the mainland's third-largest fund management firm, said the latest policy reaffirmed the maximum investment capacity of open-ended funds and would not affect the progress of any subsequent fund launches.

'The notice focuses on more details this time, giving a more clear-cut guidance on limiting a fund's size in the six months after it is launched,' said a China Southern Fund spokeswoman. 'It is part of a move to stabilise the development of the fund management industry. We have always followed the rules. Our funds are all below the ceiling.'

China Southern Fund launched its first stock-oriented QDII fund in September, with an initial fund size of just 15 billion yuan.

It later asked for approval to increase the fund size to 30 billion yuan after receiving subscriptions worth 50 billion yuan.

Other fund management companies such as China International Fund Management, a joint venture between Shanghai International Trust and Investment and JP Morgan Asset Management, also sought to expand the size of the portfolio they manage.

CSRC chairman Shang Fu-lin last month said the central government planned to increase the total QDII quota from the current US$10 billion to US$30 billion at the end of the year so as to allow increased outward flow of funds.