FndMgmtChina.jpgThe QDII scheme finally comes of age with the news that China's largest mutual fund company, China Asset Management, plans to launch its first qualified domestic institutional investor fund next month to raise up to 10bn yuan.

China Asset Management is one of four Chinese fund houses that received Beijing's approval this month to set up a QDII fund , which aims to encourage domestic investors to invest abroad but has had a difficult time gaining traction since its launch last year.

The Beijing-based company, whose funds had a combined net asset value of more than 140bn yuan at the end of June, has hired US asset manager T. Rowe Price as its overseas investment consultant.

Other fund houses that have received approval are China International Fund Management, which is JPMorgan's China asset management venture, China Southern Fund Management and Harvest Fund Management, the third-largest fund house in China and the largest foreign venture — Harvest is 20%-owned by Deutsche Bank.

China International has also said it plans to launch a QDII fund, which will aim to raise $1bn for investments in Asian markets outside Japan and Taiwan.

More of Chinese brokerages and fund houses are awaiting regulatory approval to launch QDII funds but while China's domestic equity markets keep rising and China's yuan continues to appreciate, it seems they will have a tough time convincing China's private investors to curtail their current love affair with domestic equities.

Foreign -invested fund managers now control around 40% of China's fund management industry, which had around 1 trillion yuan under management at the end of 2006. Nevertheless, of the ten top fund management groups in China, only two — Harvest and China International — have foreign participation and to date most deals have been centred on small players.

In April, Eurizon Financial Group, part of Italy's Gruppo Intesa Sanpaolo, signed a deal to buy 49% of Pengua Fund Management for around €55m. A month later, Aegon, the Dutch life insurance giant, agreed to acquire 49% of Industrial Fund Management. Last week, the UK's Prudential insurance group announced it would increase its stake in its JV, Citic Prudential Fund Management, to 49%, the maximum participation allowed for  foreign firms.

There are around 32 domestic fund managers that have yet to tie up with foreign asset management firms, so further moves are likely.

KMPG's Hong Kong office has produced a good report on the rapid evolution of China's fund management sector (pdf). See also this Financial Times story.

More on QDII in these stories.


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