Tapping China’s ‘leftover treasure’, Alibaba online funds platform nears $3.3 billion

Tapping China’s ‘leftover treasure’, Alibaba online funds platform nears $3.3 billion

5:17pm EDT

By Matthew Miller

BEIJING (Reuters) – Alibaba Group Holding Ltd’s online mutual funds platform, which launched in June allowing customers to buy and sell a single money market fund, is set to attract more than 20 billion yuan ($3.27 billion ) by the end of this month. That would make the Zenglibao fund, managed by the fledgling Tianhong Asset Management Co, the most successful fundraising by any mutual fund in China this year.The start of mutual fund services by Alipay.com Co, Alibaba’s third-party payment arm, may jumpstart online distribution and break the lock by banks over two-thirds of China’s fund sales, said Howhow Zhang, head of research at Z-Ben Advisors, a Shanghai-based investment management consultancy.

“This is really a critical point for the industry,” he said. “This is the first successful attempt to raise a meaningful amount of money without any input from the banks.”

The Tianhong fund is also helping Alipay promote its sales and payment services to other fund management companies as China’s biggest e-commerce company, founded by billionaire Jack Ma in 1999, seeks to broaden its reach into financial activities.

On Monday, China Minsheng Banking Corp, the country’s seventh-biggest lender, announced a strategic deal with Alibaba to offer financial services, including wealth management and credit card products.

There are at least 17 fund management companies – including the two biggest by market share: China Asset Management Co and Harvest Fund Management Co – building online storefronts at Alibaba’s Taobao online market. Many appear to be preparing to use the platform to sell a variety of investments, from equity and index funds to fixed income and money market products.

Alibaba will provide transaction services through its Alipay service, said Florence Shih, a company spokeswoman. “We’re figuring out what works and what doesn’t work,” she said, noting a start date for other mutual funds sales had not yet been set.

Alipay told China’s securities regulator in August it had reached agreements with 37 fund companies.

GATHERING SPEED

Other e-commerce companies are planning to offer similar services. Shenzhen-based Tencent Holdings Ltd, through its Tenpay online payment service provider, is also preparing to partner with fund management firms, according to Chinese media.

China’s 70 mutual fund companies have struggled to attract fresh cash through five years of declining domestic stock markets. They presently compete for about 2.5 trillion yuan ($408 billion) worth of managed assets, against 3.3 trillion yuan in 2007.

Alipay and Tianhong developed the new funds and payment platform – called Yu E Bao, or “leftover treasure” in Chinese – to allow Alipay customers to convert their spare cash into money market fund units.

Alipay is China’s biggest third-party payment platform, providing payment solutions to 460,000 merchants and with 800 million registered accounts. Customers can invest as little as 1 yuan ($0.16) in the Yu E Bao service and can withdraw their money and return it to their Alipay accounts at any time.

In its first 18 days, the Zenglibao fund attracted more than 2.5 million customers and raised 6.6 billion yuan, according to Tianhong’s calculations. Average investment was 1,913 yuan ($310), a fraction of the average for other funds.

Z-Ben’s Zhang estimates the fund, which offers investors variable returns, is on track to top 20 billion yuan in new capital by the end of this month. Tianhong will report the fund’s assets under management by mid-October.

“This is a very significant development and will influence how our industry will grow from here,” said Zhou Xiaoming, Tianhong Asset Management’s vice president for e-commerce business. “It gives (asset managers) more room to be more creative with our products.”

Zhou said Tianhong is now discussing the introduction of other money market products for e-commerce sales.

“Most fund management companies are interested,” said Terrance Hui, chief executive of Invesco Great Wall Fund Management Co, a joint venture between Great Wall Securities Co and Atlanta-based Invesco Ltd.

The company now has a dedicated team working with Taobao to iron out the technical issues to launch its own online store. “This should make it easier for customers to access funds that are available in China,” Hui said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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