China Universal completes Rmb9.1 billion surprise launch
It smells like 2007 again. There is no mistaking that investor sentiment in China is gaining strength, defying fund managers' calls for a correction from earlier rallies.
Year-to-date, the Shanghai Composite Index has gained a solid 62% against a dismal 2.92% return on the MSCI World. The index started off at 1880.72 points on January 5, and has since risen to 3048.3 points (as at midday on July 2).
China Universal Asset Management, a young Shanghai-based fund house founded in 2005, says it raised Rmb9.1 billion ($1.3 billion) yesterday for its latest A-share fund -- an unexpected mega launch that is being compared to an earlier record set by Changsheng Asset Management, which raised Rmb14.7 billion ($2.1 billion) for its own offering. (Changsheng is a DBS JV advised by Goldman Sachs.)
The new China Universal fund is an open-ended managed index fund. It is 95% benchmarked to the Shanghai Composite Index, and 5% benchmarked to the latest available deposit rate for liquidity purposes. China Universal says it targets minimising its tracking error to a daily maximum of 0.35%, or 6% on an annual basis; but it will still look to implement top-down and bottom-up strategies in the portfolio.
He Renke, a 33-year-old vice director in charge of financial engineering who has been with China Universal since December 2004, will step up as the fund's manager. He has a masters in Econometrics from Huazhong University of Science & Technology. Prior to joining China Universal, he was a senior researcher at Orient Securities, a shareholder of the fund house.
ICBC is the fund's custodian. Kunlun Law will be its legal advisor, while Ernst & Young has been appointed its fund accountant.
China Universal has been able to line up seven banks to support the launch, including ICBC, China Construction Bank, Bank of Communications, China Merchants Bank, Shenzhen Development Bank, Minsheng Bank and Industrial Bank.
There were also 30 brokerages that acted as distributing partners. These include: Essence, Bohai, Fortune, Changjian, Tebon, Northeast, Donghai, Everbright, Guangfa, Guodu, Guotai Junan, Guangzhou, Guoyuan, Haitong, Hengtai, Hongyuan, Huatai, Ping An, United, Qilu, Shanghai, Shanxi, Shenyin Wanguo, Tianxian, Xiangcai, Industrial, China Merchants, Galaxy, China Securities and BOC International.
The latest launch has bolstered the young firm's reputation as a nimble-sized solid performer in the fund market. Despite its small size, most of its funds have been included in top-quartile rankings according to the latest report produced by Galaxy.
China Universal is a three-way JV between Orient Securities (47%), China Eastern Airline Holdings (26.5%) and Wenhui-Xinmin United Press Group (26.5%). It has its history as the investment arm of China Eastern, managing the airline's bulging corporate treasury positions. As of June 30, total asset under management at the firm amounted to Rmb50.51 billion ($7.4 billion.)
The firm is headed by Harvard man CEO Andy Lin and includes key characters such as Herbert Zhang, CIO and one of China's top bear market fund managers, and William Han, research director.
The firm signed a deal with Capital International back in 2007 to advise on its QDII product design and investment management. China Universal also has an unused QDII quota approved by the China Securities Regulatory Commission.
The business outlook for the fund industry remains largely intact despite the CSRC's high profile condemnation of a front-running scandal at Rongtong Asset Management, a fund JV with Japan's Nikko Asset Management.