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Tapping China's 'leftover treasure', Alibaba online funds platform nears $3.3 billion

A worker walks past a logo of Alibaba Group at its headquarters on the outskirts of Hangzhou, Zhejiang province, August 24, 2013. REUTERS/Ch
A worker walks past a logo of Alibaba Group at its headquarters on the outskirts of Hangzhou, Zhejiang province, August 24, 2013. REUTERS/Ch

By Matthew Miller

BEIJING (Reuters) - Alibaba Group Holding Ltd's online mutual funds platform, which launched in June allowing customers to buy and sell a single money market fund, is set to attract more than 20 billion yuan ($3.27 billion ) by the end of this month.

That would make the Zenglibao fund, managed by the fledgling Tianhong Asset Management Co, the most successful fundraising by any mutual fund in China this year.

The start of mutual fund services by Alipay.com Co, Alibaba's third-party payment arm, may jumpstart online distribution and break the lock by banks over two-thirds of China's fund sales, said Howhow Zhang, head of research at Z-Ben Advisors, a Shanghai-based investment management consultancy.

"This is really a critical point for the industry," he said. "This is the first successful attempt to raise a meaningful amount of money without any input from the banks."

The Tianhong fund is also helping Alipay promote its sales and payment services to other fund management companies as China's biggest e-commerce company, founded by billionaire Jack Ma in 1999, seeks to broaden its reach into financial activities.

On Monday, China Minsheng Banking Corp, the country's seventh-biggest lender, announced a strategic deal with Alibaba to offer financial services, including wealth management and credit card products.

There are at least 17 fund management companies - including the two biggest by market share: China Asset Management Co and Harvest Fund Management Co - building online storefronts at Alibaba's Taobao online market. Many appear to be preparing to use the platform to sell a variety of investments, from equity and index funds to fixed income and money market products.

Alibaba will provide transaction services through its Alipay service, said Florence Shih, a company spokeswoman. "We're figuring out what works and what doesn't work," she said, noting a start date for other mutual funds sales had not yet been set.

Alipay told China's securities regulator in August it had reached agreements with 37 fund companies.

GATHERING SPEED

Other e-commerce companies are planning to offer similar services. Shenzhen-based Tencent Holdings Ltd, through its Tenpay online payment service provider, is also preparing to partner with fund management firms, according to Chinese media.

China's 70 mutual fund companies have struggled to attract fresh cash through five years of declining domestic stock markets. They presently compete for about 2.5 trillion yuan ($408 billion) worth of managed assets, against 3.3 trillion yuan in 2007.

Alipay and Tianhong developed the new funds and payment platform - called Yu E Bao, or "leftover treasure" in Chinese - to allow Alipay customers to convert their spare cash into money market fund units.

Alipay is China's biggest third-party payment platform, providing payment solutions to 460,000 merchants and with 800 million registered accounts. Customers can invest as little as 1 yuan ($0.16) in the Yu E Bao service and can withdraw their money and return it to their Alipay accounts at any time.

In its first 18 days, the Zenglibao fund attracted more than 2.5 million customers and raised 6.6 billion yuan, according to Tianhong's calculations. Average investment was 1,913 yuan ($310), a fraction of the average for other funds.

Z-Ben's Zhang estimates the fund, which offers investors variable returns, is on track to top 20 billion yuan in new capital by the end of this month. Tianhong will report the fund's assets under management by mid-October.

"This is a very significant development and will influence how our industry will grow from here," said Zhou Xiaoming, Tianhong Asset Management's vice president for e-commerce business. "It gives (asset managers) more room to be more creative with our products."

Zhou said Tianhong is now discussing the introduction of other money market products for e-commerce sales.

"Most fund management companies are interested," said Terrance Hui, chief executive of Invesco Great Wall Fund Management Co, a joint venture between Great Wall Securities Co and Atlanta-based Invesco Ltd.

The company now has a dedicated team working with Taobao to iron out the technical issues to launch its own online store. "This should make it easier for customers to access funds that are available in China," Hui said.

($1 = 6.1212 Chinese yuan)

(Additional reporting by Paul Carsten in Beijing and Clement Tan in Hong Kong; Editing by Ian Geoghegan)

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