China's first PE-mutual fund house targets launch

Private equity firm Shenzhen Capital Group plans to launch its first mutual fund product via its wholly-owned fund house Hongtu Innovation Fund Management by the end of this year.

Hongtu Innovation received a mutual fund licence from the China Securities Regulatory Commission (CSRC) on June 5 to become the first Chinese PE firm to enter the mutual fund industry.

The fund house was formally established on June 23.

And this month, Beijing-based PE firm JD Capital also set up a mutual fund firm, Jiutai Fund Management.

The CSRC revised investment fund rules in June last year to allow private equity, venture capital, insurance and securities firms to set up mutual fund houses.

“It is a strategic development for us,” Sun Dong-Sheng, president of Shenzhen Capital, tells AsianInvestor. “We want to build up our brand name via our mutual fund business.”

In 2012, Shenzhen Capital – with AUM of Rmb30 billion – had set up a joint-venture mutual fund house, Hongta Hotland Asset Management, with Hongta Securities. Shenzhen Capital owns 26% of the JV, Hongta Securities 49% and Beijing HuaYuan Group 25%.

But Sun says his firm is considering divesting its holding in the JV because it now has a wholly-owned entity, Hongtu Innovation.

The new firm is still studying product plans and aims to launch its first mutual fund product by the year-end. It will adopt a longer investment horizon than traditional funds to differentiate itself from mutual fund houses, but he did not specify how long that would be.

Sun says Hongtu Innovation will consider rolling out products with quantitative investment strategies.

It will also engage in segregated account business. Such business has become one of the main growth drivers for China’s mutual fund houses. Assets in segregated accounts reached Rmb1.5 trillion as of last month, up 24% year to date.

PE managers have an advantage over traditional fund houses when it comes to sectoral investment, says Sun, because they have extensive knowledge of the primary market and the industries they are investing in. “We want to leverage our experience in the primary market when investing into the secondary market.”

Traditional mutual fund houses tend to only talk to listed companies’ boards, but PE players have extensive experience of due diligence for industries as a whole, says Sun.

Hongtu Innovation has some 30 staff, five of which form an investment team and another five are in sales and marketing.

However, growth has slowed and competition has grown fiercer in China’s mutual fund industry as a whole. Assets under management reached Rmb3.6 trillion ($580 billion) last month, rising 20% year-on-year but falling 8% month-on-month.