MOM Guidelines To Solve The "Nesting" Problem, Long-Term Capital Market To Add An Important Channel.

After the new regulation of information management, there is a higher demand for asset allocation products under the trend of regulatory regulation.

Under this background, regulators try to introduce MOM products which are relatively mature in overseas operation. MOM products, namely manager of managers (MOM), belong to a class of mature asset management products abroad. They have the characteristics of "multiple assets and multiple wind grids", which not only embody the asset allocation ability of the female managers, but also play the specific asset management capabilities of different sub managers.

In February 22, 2019, the securities and Futures Commission issued the guidelines on product managers (MOM) of securities fund management institutions (Draft). Nearly 9 months later, in December 6, 2019, the securities and Futures Commission issued the guidelines for the management of securities and futures management (MOM) products (hereinafter referred to as the guidelines). There are 28 guidelines, which regulate the definition, operation mode, main responsibilities and qualification requirements, investment operation, internal control, risk management and legal liability of MOM products.

The release of the guidelines is the first time that China has published guidelines on the operation of MOM products. Under the background of the comprehensive reform of the capital market, the introduction of MOM guidelines and the emergence of MOM products in the future are considered to be one of the important measures for the implementation of the "12 more medium and long-term capital market".

Post regulation Era

In fact, compared with the draft, the guidelines issued by the SFC have not changed much in core content, but some articles have been refined and clarified.

The biggest change lies in the relevant sections of investment advisers. The sub managers referred to in the draft are turned into investment advisers in the guide, which can also reflect the position of regulators on MOM products.

"In general, the biggest difference between the draft and the draft is to further weaken the role of the sub manager. The sub manager is changed to an investment adviser on the name, while the investment manager is responsible for both the investment decision and the order. After the sub manager changed to an investment consultant, the position was very clear and completely connected with the previous rules and regulations. Xu Jizhang, a senior researcher at the financial regulatory Research Institute, said.

In addition, the official version of the guide also highlighted the source and verification of the source of funds, which is also a way to prevent MOM products from repeating the mistakes of some previous products.

The Institute of financial supervision believes that the guideline has added and made clear that managers should strengthen the verification of investors' sources of funds for non-public offering of MOM products, and strictly prohibit the use of MOM products for illegal distribution of funds and passages. This effectively solves the penetration problem of umbrella trust accounts, is conducive to examining the performance level of investment advisers, and introducing incremental funds to achieve optimal combination and never allow umbrella trusts to exist.

Reporters and industry contacts understand that the official release of the MOM guidelines is the core of the industry's adaptation to nesting arrangements under the new regulation of information management. According to the requirements of the new regulation of information management, it prohibits the nesting of information management products and allows information management products to reinvest a layer of information management products, but the products they invest in are not allowed to invest in products other than public securities investment funds.

Xu Jizhang said: "after the new regulation of information management, the reason why MOM is so concerned is mainly the new regulation of the administration of administration, which requires strict nesting. So the cooperation between different types of managers in the future is mainly represented by three forms: FOF, MOM and investment. The guideline can be regarded as a continuation and supplement of the new regulation of information management. In the new regulation issued by the central bank, it has been very clear that "except FOF and MOM, it is not allowed to invest in other information management products". The new regulation of the administration of management has made explicit demands on the prohibit nesting of multi-layer products, and requires product penetration. One is to reduce the possibility of managers to avoid structural design, and the other is to facilitate the appropriateness of product sales. However, the expression of the new regulation has left FOF and MOM immunity. "

According to feedback from some market participants, since the implementation of "nesting", the FOF business of private asset management institutions such as securities, funds and futures faces serious difficulties in raising funds. The main reason is that FOF has occupied two product levels and can no longer accept the investment in the form of upper products. The biggest source of funds in the traditional FOF business is bank financing, which is a product level, so the products such as bank financing can not continue to become the capital side of the securities fund FOF business.

Luan Liping, an analyst at Warburg securities, said: "MOM products occupy only one product level. This mode helps to expand the source of MOM funds, so that the private MOM of the product form can receive the most product investment up to the top level. The development of private MOM is undoubtedly an important financial support for private investment funds, and is also an important business direction of many private asset management institutions. By linking the investment framework of the traditional FOF framework to the MOM framework, it is expected to resolve the dilemma of FOF fundraising.

Medium and long term capital channel landing

From the intention of introducing MOM from the regulatory level, the introduction of MOM products is conducive to giving full play to the professional investment ability of various asset management institutions and meeting the needs of investors, especially in the medium and long term.

At the moment, the top priority of the SFC to guide medium and long-term funds into the market is to crack down on policy restrictions, expand the proportion of all kinds of capital into the market, and guide more incremental capital to enter the market.

Liu Wenqiang, an analyst at the non banking financial team of the the Great Wall Securities Research Institute, said: "the guidelines" will enrich the information management products and promote the standardized development of the capital market. The landing of multi manager business mode in China's capital market also means that China's multi management business will enter a new stage of development. The characteristics of multiple assets, multiple styles and pluralistic managers are all focused on MOM. MOM products can undertake larger amounts of funds, and can manage large scale funds through fewer products. It is very important for financial management subsidiaries, insurance companies and other institutions that manage large capital but relatively few investment managers. The introduction of the guidelines is beneficial to the securities and futures institutions to better undertake the hierarchical management needs of various institutions such as bank financing, insurance, trust and so on, and introduce more medium and long-term funds for the capital market.

Based on such considerations, the guidelines issued on the basis of draft comments have made up for the vacant rules, which are expected to activate the vitality of the MOM market.

"At present, the MOM fund market is not standardized, and the investment time is long, the market risk ability is poor, and the overall market size is relatively small. Since 2013, a total of 111 private MOM fund products have been set up, of which only 2 were established in 2018, namely, the Hong Gong Zhen MOM3 private equity fund and the Hong Kong Securities Northeast Securities Private Investment Fund. In 2017, 26 products were set up, 22 products were set up in 2016, and 53 products were set up in 2015, in 2018. We expect that the release of the guidelines will spawn a number of MOM products and look forward to the market for a long time. Liu Wenqiang thinks.

No doubt, the guide is expected to bring new business opportunities to broker management and brokerage businesses. But achieving differentiation in many MOM organizations is a test of institutional research, quality investment consulting, customer resource discovery, system development, and integrated services. As for which institutions will have the first mover advantage of MOM, it is generally believed that the public offering will quickly seize the main position of MOM products.

"From the current rules, the public fund and the information management plan manager (the securities company and the insurance information management) of the public offering fund can be used as the investment advisor of the public offering MOM. For the fund industry, after the public fund has accumulated nearly two years of public offering FOF business opportunities, the fund company will synchronize its efforts in the MOM business. Compared with the comprehensive advantages of the securities firms in investment advisor screening and internal business collaboration, the biggest advantage of the public offering fund is the public offering license. A fund manager of a large public fund in Beijing pointed out.

However, it is worth noting that the guidelines issued are only applicable to securities companies and public funds. The MOM products of other financial institutions require detailed rules of the CIRC.