Money Managers Flex Muscles for Unicorn Funds Targeting CDRs

Six large Chinese money managers are rushing to set up equity funds to raise as much as 300 billion yuan ($46.8 billion) to invest in Chinese unicorn stocks as several overseas-listed Chinese tech giants move closer to returning to the mainland market.

The six closed-end funds are expected to get approval from China’s securities regulator on Wednesday and to start raising capital from the public on June 11, separate sources said. Caixin learned that each fund aims to raise as much as 50 billion yuan.

Several overseas-listed Chinese tech giants including Alibaba Group Holding Ltd. and Baidu Inc. are expected to be the first companies to offer shares on the domestic market through the China depositary receipts (CDRs) pilot program as early as the end of June, Caixin has learned.

The six fund managers are Shenzhen-based China Southern Asset Management Co., Beijing-based China Asset Management Co., Guangzhou-based E Fund Management Co., Beijing-based Harvest Fund Management, Shanghai-based Huitianfu Fund Management Ltd., and China Merchants Fund Management Co., a subsidiary of China Merchants Bank.

Each filed an application to launch a “three-year, closed-end strategic flexible mixed-allocation equity investment fund,” according to information on the China Securities Regulatory Commission’s (CSRC) website.

Several fund managers said the funds will mainly invest in CDRs as well as the initial public offerings of new tech companies that fit the government’s call to encourage listing of high-tech companies and innovative startups.

The CSRC website showed that fund applications were submitted May 29. Usually it takes the regulator several months to approve applications, but in this case clearance came in just days, highlighting the regulator’s efforts to speed up preparations for the debut of CDRs.

Starting June 11, the six funds will first be offered for five days to individual investors through the five state-owned commercial banks and China Merchants Bank. The subscription cap for each individual investor is 500,000 yuan. After five days, the funds will be open to institutional investors, including China’s social security fund and pension funds, sources with knowledge of the matter said.

If demand from individual investors is lukewarm, the social security fund and pension funds will subscribe for the remainder, sources said.

But some banks are worried that it could be challenging to raise such a huge amount of capital in such a short time. A bank executive told Caixin that his bank hasn’t obtained the official product information, so it’s hard to predict the selling process.

Baidu, NetEase Inc., Alibaba and JD.com Inc. have been working with their sponsors for the planned depositary offering as early as the end of June, according to sources. The companies and their sponsors are preparing materials for the listings pending regulators’ release of detailed guidelines on CDRs, the sources said.

The CDR program, modeled after U.S.-listed American Depositary Receipts for foreign equities, will allow overseas-listed Chinese companies to transfer part of their shares to banks to circumvent barriers that discourage IPOs on China’s A-share market. These barriers include restrictions on weighted voting rights — which tech and family-owned companies favor as a way of retaining control — and requirements on profitability.