Chinese regulators make first move to limit fund AUMs

Increased regulatory action in China’s investment fund sector has led to China’s largest money market fund reducing its assets under management.

Yu’e Bao was once the world’s largest money market fund but assets had been declining since the first quarter of 2018 when it imposed subscription limits and were currently US$150 billion ($193 billion).

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However, the fund had come under scrutiny which Fitch Ratings believed was due to its connections with Ant Group, an affiliate of Alibaba Group, which had a majority stake in the fund manager and owned Alipay, the online payment platform which was crucial to the fund’s growth.

Ant Group was ordered to manage the liquidity risk of the main fund distributed through Alipay platform and proactively reduce the size of Yu’e Bao, the first time regulators had proactively asked for a reduction in fund size.

At the end of the first quarter 2021, there were 29 money market funds on the Yu’e Bao platform, accounting for 30% of the market but assets under management fell by 18% during the three months.

“We believe the move indicates increased willingness to intervene in fund- or manager-specific cases. The profitability of managers of large funds could be weakened if caps on fund size are more widely implemented, as revenues are typically driven by fees linked to assets under management,” Fitch said.

“The move may also have implications for domestic financial and non-financial corporates that use short-term wholesale funding provided by Yu'e Bao, as some of them will need to seek alternative funding.”

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