In China, the private fund market is equivalent to the professional investor market in Hong Kong. Only qualified investors, such as institutional and high net worth investors, are allowed to participate. Mutual funds account for RMB 11.6trn, representing 4841 mutual fund products, according to data from AMAC.
In 2015, the private fund sector managed under fund houses and their subsidiaries was worth merely RMB5 trn and assets doubled in the following year to surpass RMB 10trn at the end of 2016.
The tremendous growth in assets has attracted foreign asset managers, who have set up investment management wholly-foreign-owned enterprise (IM WFOE) structures and registered with the AMAC in order to be eligible to sell private funds to onshore professional investors.
Last year, the first-ever private fund manager (PFM) license for foreign managers was granted to Fidelity International. The firm obtained the license in January 2017. Its debut product was launched in May and followed by a launch of another fixed income fund and an equity fund in December.
Among at least 22 IM WFOEs established, only 10 of them have been granted the PFM license so far, with the latest being Aberdeen Standard Investments, Blackrock and Schroders.
Growth and scale of private fund assets are increasingly attracting foreign fund managers to China, Miao Hui, senior analyst at the research institute who leads the China research initiative at Cerulli Associates said earlier in a report. Given multiple cases of PFM license granted this year, Hui expects the authority to continue approvals for foreign firms.
Moreover, through IM WFOEs, foreign managers are not allowed to sell fund products to China’s retail investors. To attract investment from the retail investor base, the only way is to partner with local firms in a joint venture. However, foreign managers generally do not prefer the JV structure due to a high cost and difficulties in operation, FSA reported earlier.