3-year hybrids sell like hot cakes

Demand rising as investors keen on investing in new economy companies

Individual Chinese investors are snapping up three-year hybrid funds focusing on unicorn companies, startups with a valuation in excess of $1 billion, as they embrace China's financial innovation and seek good investment returns.

Six Chinese asset managers have received regulatory approval from the China Securities Regulatory Commission to float the three-year hybrid funds.

By 11 am on Monday, China Merchants Fund Management Co Ltd had sold about 10 billion yuan ($1.56 billion), followed by E Fund Management Co Ltd with around 4 billion yuan and China Southern Asset Management Co Ltd with more than 3 billion yuan.

China Asset Management Co Ltd, Harvest Fund Management Co Ltd, and China Universal Asset Management Co Ltd each sold more than 20 billion yuan, according to a sales director at one of the firms, who declined to be named.

The maximum financing amount of each fund will be about 50 billion yuan, while 5 billion yuan would be the lower limit. Individual investors can subscribe to the funds between Monday and Friday and institutional investors on next Tuesday (June 19). Each individual investor can purchase 500,000 yuan at the most from each fund.

People close to China Merchants Fund Management Co Ltd said the sales of the funds on Monday were hot as individual investors showed great interest in investing in new economy companies and the distribution channel of China Merchants Fund was strong.

Hu Feifei, a Beijing-based 36-year-old investor, said the three-year hybrid funds are a good way to support national strategy and allocate assets.

"It is an important indication of China's financial innovation and I believe the fund product will bring me satisfactory investment returns," said Hu.

Ji Lu, executive director at Harvest Fund Management Co Ltd, said it is a system innovation to launch the three-year hybrid funds, which will share economic dividends with the public.

The hybrid funds will mainly invest in the Chinese Depository Receipts of unicorn companies listed in overseas markets, newly listed unicorn companies, treasury bonds, local treasury bonds and AAA-rated corporate debt. The lock-in period of the fund is three years and it would be listed as an open-ended fund, which means investors can also transfer their shares at the bourses.

The Chinese mainland has 78 unicorn companies listed on US and Hong Kong bourses, and another 120 unlisted unicorn companies mainly in internet finance, automobile, hardware and entertainment industries, according to a report of GF Securities.

Xiaomi, one of the world's largest smartphone manufacturers that is planning an IPO in Hong Kong, said in a regulatory filing released on Monday that it will also issue Chinese Depositary Receipts on the Shanghai Stock Exchange.

According to China Securities Journal, technology giant Baidu will be the first US-listed company to issue CDRs at home. Huatai Securities and CITIC Securities will become its sponsors.

Hong Hao, chief strategist at BOCOM International Holdings Co, said the move will inject funds in the A-share market, but investors will still have liquidity concerns.

The Shanghai Composite Index on Monday touched its lowest level since last May before closing down 0.47 percent at 3,052.78 points, while the blue-chip CSI300 index was unchanged at 3,779.98 points. The Shenzhen Component Index decreased by 0.30 percent, while the ChiNext startup index fell 1.34 percent.