JP Morgan to roll out more MRF funds

Tong said the firm has already filed an application for the JP Morgan Asia Equity Dividend Fund, which invests in dividend-paying companies in Asia-Pacific. If approved, this would be the firm’s third fund under the scheme. 

JPM has so far been the most successful asset manager under the scheme, attracting combined gross flows of RMB 9bn ($1.3bn) for its JPMorgan Asian Total Return Bond Fund and JPMorgan Pacific Securities Fund last year, according to the firm. Tong declined to specify net flows.

The bond fund, the top asset gathering vehicle in MRF northbound sales, recently lifted a cap on investment, Tong told FSA earlier.

Negative fund flows

Data by the State Administration of Foreign Exchange in China showed that in the three months ending January, the latest for which data was publicly available, the combined flows for all funds eligible for sale in China under the scheme had been negative for three consecutive months. 

In addition, mainland regulators have apparently halted approval for northbound funds sales through the MRF, FSA reported earlier.

Tong was nevertheless upbeat about the MRF, arguing that the third fund would offer Chinese investors the opportunity to invest in Asian equities while providing income.

With the third fund already submitted for approval, Tong said it was considering a fourth fund, a relatively low volatility equity fund, and possibly a fifth fund that could be another fixed income fund.

“Our goal is to make our product shelf as comprehensive as possible,” Tong said.

Even so, Tong said a pragmatic approach was needed in China. “It is a big market, and we have to have discipline. We do not need that much manpower to conduct fund distribution business in Hong Kong [but] when we try and cover China, that is a completely different story.”

In China, RMB 145trn of financial assets were held in deposits in 2014 and only 3% in mutual funds, according to research by consultancy Oliver Wyman.

The consultancy predicted assets under management held in mutual funds to grow to RMB 24trn in 2020 from RMB 4trn today and described it as a “massive opportunity” for local and potentially foreign asset managers.

Distribution issues

It is hard for foreign asset managers to sell their funds into China, not only because their brands are not yet well-known but also because they lack the vast distribution network, often with banks, that their Chinese rivals have built over the years.

“We work closely with our joint-venture in Asia, which has been operating in China for more than ten years,” Tong said. “We work closely to promote the funds, but even with that you need a clear strategy in China because it is big.”

JP Morgan is focused on Beijing and Shanghai, but exploring opportunities in other cities like Chongqing and Chengdu to expand its geographic reach.  

The funds are distributed through 17 banks and independent financial advisors in China (see list below).

Tong said the aim is to broaden the distribution network to avoid over-reliance on one channel as some competitors have done.

There are limitations to how much asset managers can raise in China. The overall asset-gathering quota for funds under the MRF (which need to be domiciled in Hong Kong) is RMB 300bn and no fund can raise more in China than it has raised in Hong Kong.

The JPMorgan Asian Total Return Bond Fund has assets of $2.5bn and the JPMorgan Pacific Securities Fund assets of $400m.

“Obviously, we want to have funds [for distribution in China] that are suitable for investments and that have scalability,” Tong said.

The two MRF funds “still have a long way to go” in China, he added.

Three year performance of the two MRF funds, in US dollars:

 Source: FE

China distributors for JP Morgan’s MRF funds

Source: JP Morgan