Companies Line Up to Offer Public Funds
BY 2013-05-26 19:58:31
(Beijing) – Several securities firms and private funds have lined up for regulatory approval to launch public funds after June 1, when a policy that permits them into the business came into effect.
The most promising candidates to receive the first batch of clearance from the regulator include Guotai Junan Securities, Orient Securities, CITIC Securities, First Capital Securities and Galaxy Securities, analysts say.
Public funds are offered for sale to the public with a relatively low investment threshold, as opposed to private funds, which are restricted to investors with higher risk tolerance and are strictly barred from seeking out clients in public.
Both Orient Securities and Guotai Junan have set up a department to study public funds and handle administrative affairs, including putting together application materials for launching public funds. CITIC Securities has announced its decision to enter the fray, pending approval by its shareholders.
Beijing StarRock Investment Management Co., a hedge fund, has joined the competition as well. Yang Ling, the company's president, said it had considered plans to transition from a private fund manager to one that also runs public funds.
The key is "how quickly the China Securities Regulatory Commission wants to approve new public funds," she said.
StarRock is a sunshine private fund, a type of privately offered fund that trade securities in the secondary market. They are issued through trust companies and thus subject to the banking regulator's supervision, as opposed to other private funds in China which are largely unregulated.
Until the revised Securities Investment Funds Law came into effect on June 1, privately offered funds were not regulated by CSRC.
The revision to the law was passed on December 28. Two days later, the CSRC rolled out the policy that would allow securities firms, insurance companies and private funds to operate public funds. The policy also went into effect from June 1.
To apply for launching public funds, those financial institutions will first need to be a member of the Asset Management Association of China. That would not be an obstacle for most large ones because the asset management subsidiaries of many large insurance companies, securities firms and sunshine private funds have already joined the association.
Two other requirements for private funds are a minimum of 10 million yuan in paid-in capital and a track record of managing on average at least 2 billion yuan of assets in the past three years.
StarRock was founded six years ago. It meets both requirements and has created a team led by existing fund managers to operate public funds. The team would be separated from the private fund businesses but the two sides would share information and research results, Yang said. The arrangement would enable the company to add public funds to its current portfolio of assets management without increasing cost, she said.
Unlike StarRock, most other sunshine funds are either too young or cautious about marching into an unfamiliar territory.
Like private funds, securities firms need to satisfy two other requirements to start managing public funds. First, their risk control indicators for the past 12 months must meet regulatory requirements. Second, they must have at least 20 billion yuan of assets under management or the combined amount of their collective asset management schemes must be at least 2 billion yuan.
Meanwhile, from June 1, securities firms are required to stop launching large collective asset management plans, which have a low investment threshold of 50,000 yuan and can be sold to more than 200 investors. Existing ones could be transformed to public funds.
Securities firms also have other types of asset management services, including small collective asset management schemes, which require at least 1 million yuan from each investor. Investors with more cash can choose wealth management schemes with a higher minimum capital requirement.
There are more than 30 securities firms that manage at least 2 billion yuan under in their collective asset management schemes, according to data from Wind Info, a financial information provider.
Many of them were keen to make a transition to public funds but had not made much progress because the regulator had yet to lay out detailed rules for guiding the change, a securities firm's executive said.
"The regulator has held two meetings with securities firms in March and April to discuss the matter of changing large collective asset management schemes into public funds, but the details of the implementation plan are still unclear," he said.
One likely problem is about the conflicts of interest between old and new businesses. It would be necessary for some securities firms to change their corporate structure to establish a firewall between public funds business and their old asset management services, an executive of a Shanghai-based securities firm said.
Also, public funds regulations require more transparency in a more timely fashion than those of privately offered funds. Adaption to stricter regulations would be a "big challenge" to both securities firms and sunshine private funds, a First Capital executive said.