Money

Mellon equity fund begins operations

By Zhou Yan (China Daily)
Updated: 2010-11-16 10:47

SHANGHAI - BNY Mellon Western Fund Management Co, an equity fund venture jointly set up by the world's largest custody lender - Bank of New York Mellon Corp (BNY Mellon) and China's Western Securities, officially began operations on Monday, and plans to launch its first fund product as early as the end of this year.

"Our team has fully prepared and we hope to issue our first fund product by (the end of ) this year but the final decision is subject to regulatory approval," An Baohe, chairman of the newly established fund house, said in Shanghai , where the new firm will be based.

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The fund, with registered capital of 200 million yuan ($30 million), was granted a business license in July by the China Securities Regulatory Commission, making it the first such enterprise in the country to receive the license in two years. Western Securities holds a 51 percent stake in the joint venture, while the remainder is owned by BNY Mellon, the world's 11th-largest fund manager, managing assets worth $1.14 trillion.

The fund management joint venture initially aims to manage Chinese securities in a range of local retail fund products and focus on leveraging distribution within the banking and securities sectors.

China's A shares are traded at a P/E (price-earnings) ratio of approximately 16 times, which is quite reasonable, said Hu Bin, chief executive officer of the fund management house.

The Shanghai Composite Index, the larger of the mainland's two gauges, was among the world's best performers in 2009 with 80 percent growth. But amid the government's tightening policies to curb "hot money" inflows and asset bubbles, the gauge has cumulatively declined more than 8 percent so far this year.

"The government's recent curbs on liquidity are a relative adjustment of monetary policy made earlier There will be reasonable investment opportunities in China's stock market in the future if the nation's economy continues to expand by 8 to 10 percent ahead, which indicates even higher corporate earnings," Hu said.

Liu Jianwu, chairman of Western Securities based in Xi'an, said that the venture's funds are seeking to achieve long-term growth, and, as a shareholder, the company will not be disappointed if the fund house does not break even within two to three years. "If required, we can inject additional capital to the new company at anytime," Liu said.

BNY Mellon, which has been in the Chinese market for more than 15 years, has bet on the world's second-largest economy for higher investment returns while the US recovery is on shaky ground.

BNY Mellon expects that more than 50 percent of its business will come from outside the US market, which currently accounts for one-third of the lender's total, according to Robert Kelly, the company's chairman.

BNY Mellon was granted a license to purchase yuan-denominated securities under the QFII program in February, but has yet to obtain the investment quota.