(Removes reference to private equity in headline, clarifies that rule applies to a specific type of private-placement investment funds, not private equity funds)
SHANGHAI, Dec 31 (Reuters) - China plans to allow eligible securities houses and insurers’ asset management units to develop and manage mutual funds in a bid to reinvigorate an industry struggling to produce returns for investors.
It will also allow Chinese private “sunshine” funds, which invest privately raised capital in listed securities, to launch mutual funds and market them to the public.
The move will open an already-crowded sector to more competition. The Chinese mutual fund industry already has more than 60 companies vying for a pool of investors who have grown steadily disenchanted with Chinese equity markets.
Shares of Chinese insurers and brokerages moved higher on Monday, with China Life Insurance, the country’s largest insurer, jumping 3.8 percent in Shanghai to its highest intra-day level since April 2011 at 0205 GMT.
Both the Shanghai Composite Index and the CSI300 of the top Shanghai and Shenzhen listings were up 0.7 percent. China Life Insurance’s Hong Kong listing was up more than 1 percent, outperforming the benchmark Hang Seng Index’s 0.1 percent rise.
Shares of Haitong Securities , China’s second-largest listed brokerage, rose 1.4 percent in Hong Kong and 0.8 percent in Shanghai.
Mainland stock markets have historically failed to produce positive returns for most retail investors, according to recent survey data from the Southwest University of Finance and Economics in Chengdu.
At the same time investors are now able to invest in exchange-traded funds (ETFs) that passively track indices, diminishing the need for active management.
Some mutual funds have recently begun moving money into China’s rapidly developing bond and money markets, which have proven more popular with many investors given their greater stability. However, such funds produce far smaller management fees for fund managers.
Regulations published on the China Securities Regulatory Commission’s (CSRC) website on Sunday set distinct barriers for the new entrants.
Securities houses must be profitable, with at least 20 billion yuan ($3.21 billion) in assets under management (AUM) and at least 1 billion yuan in net assets in the most recent quarter.
Insurers’ asset management units must also have 20 billion yuan in AUM and be in compliance with other regulatory requirements specific to the insurance industry.
The “sunshine” funds need to have at least 100 billion yuan in paid-in capital with at least 300 million yuan AUM over the last three years, according to the regulations.
All firms must have at least a B rating from the CSRC for regulatory compliance and risk management.
The official China Securities Journal reported on Monday that there are 16 securities houses and 14 insurance companies that currently meet the conditions for participation. ($1 = 6.2335 Chinese yuan) (Reporting by Pete Sweeney and Chen Yixin; Additional reporting by Clement Tan in HONG KONG; Editing by Richard Borsuk)