An interesting dynamic has emerged in the Chinese mutual fund industry. Asset managers are attempting to balance public mutual fund business and the non-core segregated account and subsidiary business, largely composed of loan packaging operations. While the AUM of the former dropped in 1Q16 as window-dressing capital was extracted, the AUM of the latter grew by 14% to bring the industry total to RMB22tr (USD3.4tr). The growth of less-transparent subsidiary business, which makes up almost 90% of some FMC subsidiaries’ AUM, has now drawn the attention of regulators. Stricter oversight and possible cash calls are likely to hinder industry growth, but should result in a more consolidated and healthier industry in the long term.

In addition to in-depth analysis on subsidiary business, this quarter we also delve into segregated account cash pooling, analyze the impact of recent bond defaults and assess evolving MRF distribution strategies.

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