China's onshore mutual funds lack managers

Added 13th October 2016

Each onshore mutual fund manager needs to take care of 3.12 funds on average, according to a Morningstar report.

China's onshore mutual funds lack managers

There were 3,110 mutual funds available in the mainland as of June 30, up 15.2% from a year ago. But the number of fund managers only grew 8% to 1,341 during the same period.

An extreme case was cited in June by Securities Times, which reported that Chen Kaiyang, a fund manager at Bosera Asset Management, was managing 32 funds, mainly the mid- to long-dated bond funds and money market funds.

Nonetheless, China's onshore mutual fund assets climbed to record high to RMB 8.52trn ($1.28trn) in August after a slump in the first half. 

Institutional appeal

Institutional investors accounted for about 55% of the mutual fund assets as of June, the Morningstar report noted.

They favor bond funds, including aggressively-allocated products, that can invest a small portion in equities or convertibles, as well as pure bond and short-dated bond products. More than three-quarters of these funds’ assets are from institutional investors, the report said.

“In the midst of the liquidity-abundant environment with limited investment opportunities, institutional investors are starting to eye mutual funds to fulfill investment needs and make profits.”

Institutional investors tend to have long-term holdings and ask for stable returns. Therefore, their participation could enhance the professional standards of China's mutual fund industry, the report noted.

“On the other hand, [institutional investors] are more sensitive to the market. Large subscriptions or redemptions will significantly affect the fund size and make it more difficult for fund managers to manage assets, hence impacting on the performance,” Lim Yao, Morningstar China research analyst said in the report.

Z-Ben Advisors, a consultant, also pointed out that mutual funds’ clearer taxation policies compared to some private funds could appeal to institutional investors.

Retail investors, meanwhile, “still prefer equity-focused funds, such as convertible bond funds, and mixed asset funds, which invest the majority of assets in equities".

Overall, onshore mutual funds hold equities worth RMB 1.62trn in total, 4.5% of the market capitalisation in the Shanghai and Shenzhen bourses.

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