风云三之断浪:China’s lighter touch for segregated accounts...

China’s lighter touch for segregated accounts

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2011-9-16 14:45



By Glori Ye


The China Securities Regulatory Commission plans to relax the rules governing segregated accounts run by the country’s fund management companies.


The CSRC will reduce the minimum assets under management requirement for single segregated accounts, and allow the accounts to invest in commodities futures and hold up to 20 per cent of assets in one stock. It will also remove the requirement for fund groups to have two years of securities investment experience and a minimum Rmb20bn ($3bn) of assets under management. The new rules will take effect on October 1.


The changes are expected to help increase the demand for segregated accounts, which cater to wealthy individuals and institutional investors, and offer small fund managers an opportunity to increase their asset base.


“This is good news for small fund companies that want to expand their assets under management,” says Zeng Linghua, an analyst at Howbuy Fund Consultancy, a research firm. “Small fund companies can increase their assets from both the retail market and corporate clients.”


Due to the stagnant retail fund market in China, some newly launched fund companies are struggling to survive. When the relaxed segregated accounts rules become effective, new fund companies can easily participate in this business and try and attract wealthy or institutional clients with such accounts, at least until the retail market recovers.


Thirty-seven fund companies had segregated account licences as of June, according to data from research firm Howbuy Fund Consultancy. Assets under management in the accounts amount to Rmb100bn ($15bn), according to an estimate by Z-Ben Advisors, a consultant.


Allowing segregated accounts to invest in commodities futures will encourage fund managers to develop products that generate absolute returns, says Liu Zhen, Guangzhou-based general manager of the index and quantitative strategies department at E Fund Management. That could ultimately help boost the development of hedge funds in China, he adds. Segregated accounts are currently restricted to stock index futures on the derivatives front.


E Fund launched China’s first set of hedge fund segregated accounts in August 2010, with minimum entry levels of Rmb50m at that time.


The regulator will also allow investors of segregated accounts to redeem their assets once a quarter, instead of once a year. This is expected to give investors more flexibility in making investment decisions.


The relaxing of the segregated accounts rules is likely to have a muted impact in the near term.


Despite the rule changes, the segregated account business still has limited room to grow because it is facing fierce competition from other financial institutions, says Qin Bo, deputy general manager of Shanghai-based Chang Xin Asset Management. Private fund companies, banks and securities firms are all developing their own segregated accounts.


Weak performance is another obstacle for the growth of the segregated accounts businesses of fund companies. Among the 155 segregated account products in China tracked by financial data provider Wind Info as of end-July, 74 had a price per share of less than Rmb1.


The segregated account rule changes appear to be motivated by CSRC’s interest in fostering a more competitive environment for fund management companies’ wealth management business lines, according to Z-Ben. The consulting firm notes that while segregated accounts have been able to charge performance fees, margins earned have been low due to the current assets under management levels.


“If segregated accounts were to become more competitive, managers could, in theory, earn significantly more from performance fees, which would greatly increase the attractiveness of developing non-core business,” Z-Ben says.



Glori Ye is a reporter on Ignites Asia, a Financial Times publication, where this article first appeared