Barriers lowered in public funds sector

China's top securities regulator said it will allow qualified private equity and venture capital firms to enter the public funds business, in a bid to encourage the development of a comprehensive wealth management sector.

Barriers to enter the public funds sector will also be lowered for securities companies and insurance asset managers, the China Securities Regulatory Commission said on Monday.

The move means that not only fund companies but all types of financial institutions providing asset management services can now apply for the public funds business if they meet the requirements.

Analysts said this is the beginning of a new era for the country's wealth management industry, which may bring increased innovation to the sector.

Securities companies with at least 20 billion yuan ($3.18 billion) of total assets under management, or more than 2 billion yuan of aggregate assets under management, will be able to apply for the business.

Insurance companies should have more than 20 billion yuan of assets under management and no less than 500 million yuan of net assets.

For private equity firms, the minimum value of assets under management should be 2 billion yuan in the past three years, the CSRC said. "Financial intermediaries will be able to start applying from June 1. At that time, the modified Securities Investment Fund Law will take effect," said an official at the CSRC.

"Asset-management institutions will be able to expand the new business based on their brand influence and investment experience, to attract more funds into the capital market, as well as provide improved financial services for investors," he said.

The new rules follow changes to the Securities Investment Fund Law adopted by the Standing Committee of the National People's Congress on Dec 28. The rules confirmed that it is legal for private equity firms to raise public funds.

The changes will help increase the number of institutional investors and sustain the stable development of the capital market in the long term, the CSRC said.

Hu Lifeng, general manager of the Fund Research Center of China Galaxy Securities Co Ltd, said that the new rules will bring more clients and funds to financial institutions. But they will also mean increased competition in the asset management sector.

"Traditional fund management companies still have advantages, as they have the strongest investment research capabilities, especially for high-risk stock investments and overseas projects," Hu said.

Supported by the new rules, public funds management services are expected to remain a core area of the wealth management industry, Hu added.

"This is also favorable for insurance companies because it will allow them to enlarge their business scale," said an analyst at Ping An Insurance (Group) Co of China Ltd, who declined to be named.

"Insurance companies will compete with banks, securities brokers and other asset management companies in the areas of investment and asset allocation. Marketing channels will become the most important thing," he said.

The development space for China's asset management sector will be huge, said Wang Yong, a partner with Han Kun Law Office.

"Deregulation in the sector will continue, which will diversify investment channels and encourage innovation and new financial products," Wang said.