China launches first national FoF

12-29-2010 13:38 BJT

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As seasoned investors know, diversification and smart asset allocation are the twin pillars of a low-risk portfolio. And a fund of funds, or multi-manager investing, allows investors to do just that. FoFs are funds that invest in other funds, rather than investing directly in securities. And now Chinese investors can get involved, with the country's first state-level yuan-based FOF.

China's yuan FoF was jointly established by the Suzhou Ventures Group and China Development Bank Capital, a wholly-owned subsidiary of the China Development Bank.

China's yuan FoF was jointly established by the Suzhou Ventures Group and China Development Bank Capital, a wholly-owned subsidiary of the China Development Bank.

FoFs invest in funds including venture capital and private equity funds, and is a standard investment technique in the financial industry. One of primary aims of China's yuan-based FoF is to support the overseas expansion of Chinese companies.

Chen Yuan, Chairman of China Development Bank said "The liquidity capital of the market is sufficient, but we're still lacking an effective tool to hedge and increase the value of that capital. For companies who want to get listed, China's stock market requires them to have earnings first. So the national FoF will provide greater fundraising opportunities."

The bank's president also says they will invest in funds with a preference for high-tech and strategic industries, supporting them to become global leaders in their fields. The fund will be valued at 15 billion yuan during its first operational phase, with 10 billion yuan to be set aside for a Private Equity FoF. The remaining 5 billion yuan will be put towards a Venture Capital FoF, and managed by the Suzhou Ventures Group.

China's yuan FoF was jointly established by the Suzhou Ventures Group and China Development Bank Capital, a wholly-owned subsidiary of the China Development Bank.

Yan Li, Mayor of Suzhou said "The support of China Development Bank will help boost the innovative sectors in our economy. We believe the establishment of the FoF will accelerate the transformation of Suzhou's economy."

The Private Equity FoF will mainly invest in funds focused on industrial mergers and acquisitions, while the Venture Capital FOF will predominately invest in high-potential start-up companies.