New $1.5b fund fuels fintech boom

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Startups working on new financial products, a sector called fintech, now have an extra US$1.45 billion on their side after China last week launched the Asia Fintech FOF. It comes months after a similar fund out of Beijing, the Zhongguancun Fund of Funds, put US$4.3 billion in its war chest to invest in startups in the sector.

Fintech startups around the world are booming, with China leading the way in these new kinds of online and app-based services. China has five of the planet’s top 10 fintech firms, according to a report last year by KPMG.

Amidst that growth, China’s fintech startups last year attracted US$9.8 billion in funding, putting them above ecommerce ventures, shows the Tech in Asia Database. Only ride-hailing and logistics startups attracted more cash.

See: China’s startups hit by dramatic funding slowdown

Hot money

But the two funds’ US$5.8 billion devoted to fintech investments comes with a huge risk. A number of experts have warned of excessive money spilling into private-public fund-of-funds – just like the Zhongguancun and Asia Fintech FOFs – in the absence of other attractive avenues for China’s retail investors.

Despite the venture capital downturn this year, raising funds to invest in fintech is not difficult.

“We are concerned about the consequence of massive flooding of capital from some institutions, including local government-backed policy guidance funds and fund-of-funds,” said Jia Hongbo, general secretary at AMAC, a self-regulatory body supervised by China’s securities regulator, speaking at an industry event earlier in November. “The volatility and the size of the incoming funds could be a disaster to early-stage investing,” Jia cautioned.

These fund-of-funds run the risk of creating a bubble, pumping excessive cash into poor quality and unsustainable startups.

The new Asia Fintech FOF will pour its riches into funds looking at startups working on mobile payments, blockchain technology, artificial intelligence, wealth management, and consumer finance, reports the South China Morning Post.

“Despite the venture capital downturn this year, raising funds to invest in fintech is not difficult,” said Xie Sha, a managing partner of the FOF, to the SCMP. “Most Chinese banks and securities are eager to own or have stakes in fintech startups, which they believe would define the future commanding heights.”

The Asian fund could benefit Southeast Asia’s fintech startups, which are at an earlier stage of development relative to those in China.

See: Ecommerce deals fall behind fintech in Southeast Asia

Converted from Chinese yuan. Rate: US$1 = RMB 6.93.

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from Tech in Asia https://www.techinasia.com/billion-dollar-asian-fintech-fund
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