Blockbuster fund initial public offerings (IPOs) are expected to remain a trend in China. Assets under management of mutual funds in the country, including those of exchange-traded funds, recorded a robust year-on-year growth of 37.5% to 19.7 trillion yuan (US$3.0 trillion) last year.
Total assets garnered through mutual fund IPOs reached 3.2 trillion yuan, double the size in 2019. The average IPO volume of new funds also improved to 2.2 billion yuan, from 1.5 billion yuan in 2019, according to Cerulli Associates.
Local media reports show that in 2020, over 100 new funds were sold out within one day after subscriptions commenced, and 15 of these IPOs successfully garnered assets of over 10 billion yuan. The trend continued in the beginning of 2021, according to China Fund News reports, when a total of 122 new mutual funds were rolled out in January, raising assets of almost 500 billion yuan, the second largest monthly amount for IPO assets recorded in the market.
Among the factors behind blockbuster new fund launches are optimistic investor sentiment, star managers with good track records, and sufficient liquidity in the market. Over the past few years, the Chinese government has introduced a series of monetary easing measures to stimulate the economy amid US-China tensions and the Covid-19 pandemic.
Part of the money supply went to the real economy and real estate market as traditional long-term investment vehicles for local residents, while the rest was available to asset management products. This created plenty of opportunities for mutual funds, as other investment products in general are not attractive enough, Cerulli notes.
The fast-track fund approvals introduced by the China Securities Regulatory Commission (CSRC) have also facilitated their new fund launches, according to some managers. The scorecard method introduced by the CSRC in late 2019, which classified fund management companies into different categories, meant that managers with higher scores can enjoy privileges like fast-track fund application. Extensive marketing efforts and digital distribution have also supported mega fund launches.
Following this year’s Lunar New Year holiday, the stock market plunge dampened investors’ interest in new fund launches. However, despite the potential challenge to fund raising, managers focused on the long term are still upbeat about the industry’s prospects, and are confident that mega fund launches will resume if the stock market turns bullish again, Cerulli says.
Mutual funds’ long-term growth prospects should continue because profits earned by listed enterprises after the pandemic will eventually enter the stock market, and funds have an inherent advantage over other financial products, managers told Cerulli.
“The cooling of market sentiments is normal, and it is also an opportunity to educate small-ticket young investors who have not experienced many market cycles,” says Cerulli senior analyst Ye Kangting. “As long as the recovery does not take too long and a bear market is avoided, the long-term outlook for mutual fund IPOs should remain positive.”