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The market for fund of funds in the country expanded by 33% in the first quarter compared to the previous year, reaching an all-time high of nearly CNY325 billion (about USD47.6 billion) in assets under management. This surge was driven largely by the launch of new products, according to financial services provider China International Capital Corporation. During the three months ending March 31, 53 new public fund of funds (FOFs) were introduced, excluding four pension FOFs that were converted from existing products, totaling 68.9 billion shares issued.
By the end of last month, there were 591 public FOFs available in the market, marking a 10% increase from the previous quarter, based on industry data. A FOF is an investment vehicle that pools capital to invest in a diversified portfolio of other funds—such as mutual funds, hedge funds, or private equity funds—rather than investing directly in stocks, bonds, or securities. This approach provides investors access to a broader selection of assets.
In addition, the fundraising period for public FOFs has shortened noticeably, reflecting increased investor interest. Products launched so far this year took an average of only 9.28 days to raise capital, nearly half the 17.52 days required last year. At least 10 funds sold out on their very first day.
As interest rates continue to decline, traditional bank savings products are losing appeal, prompting investors to explore higher-yield alternatives. Data from state-owned China Wealth Asset Management Registry and Custody revealed that bank wealth management assets shrank by CNY1.38 trillion (approximately USD202 billion) to CNY31.91 trillion (around USD4.68 trillion) in the first quarter. Meanwhile, figures from the People’s Bank of China indicated household deposits only increased by CNY7.68 trillion during this period, which is CNY1.54 trillion less than the same quarter last year.
A senior official from a leading bank’s wealth management division mentioned that deposits are not very attractive now, equity investments are considered too risky, and FOFs sit somewhere in the middle. However, it remains uncertain whether they will sustain their popularity once the current capital reallocations are complete.
Industry experts noted that many FOFs employ similar strategies and face limited differentiation options. If their performance declines, leading to a surge in redemptions from short-term products, it could cause significant market volatility.
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