The decision was mentioned in the recently-updated Review Guidelines of Fund of Funds issued by the China State Securities Regulatory Commission (CSRC), according to law firm K&L Gates.
The rule applies to funds under the Mutual Fund Recognition scheme between the mainland and Hong Kong, according to the law firm.
Funds authorised by the Securities and Futures Commission and approved by the CSRC under the scheme may be invested in directly by FoFs from mainland China.
The development is expected to provide foreign fund managers with a new institutional distribution and fund-raising channel in mainland China. Foreign asset managers who want to fundraise there but are restricted from directly accessing the market may find the MFR a feasible route.
At the same time, through the MFR scheme, mainland funds could have a more straightforward way to invest in offshore assets, thereby diversifying their asset base.
In September 2017, the CSRC approved the first batch of six FoFs, which raised a total of RMB16.6bn ($2.5bn) in assets during their initial public offerings.
This latest move suggests that mainland regulators are relaxing the investment restrictions of FoFs. In March 2018, they allowed mainland pension FoFs to invest in MFR funds in order to address retail investors’ retirement needs.
China continues to relax onshore fund rules as part of a gradual but sustained opening of the broader financial industry. Most recently, Chinese regulators have said they intend to allow foreign managers holding a private fund management licence to convert their businesses into a public fund management company, which would permit them to distribute to the RMB 13.9trn ($2trn) retail investor base.
To date, there are at least 18 foreign private fund managers in the mainland, which all together have launched 35 onshore products.