Domestic players generally have the advantage in terms of client base, local knowledge and investment track records, according to a recent report by Boston-based research firm Cerulli Associates.
Therefore, foreign managers will have to work with various mainland distributors to gain more investors, according to the report.
Banks, given their large HNW client base, have been the most common and effective way for managers to reach investors.
For example, China Merchant Bank’s private banking arm has at least 67,000 HNW clients, with average assets per account that surpassed RMB 28m ($4.08m) at the end of 2017, according to the report.
Foreign banks with an onshore presence are also starting to offer private funds managed by wholly foreign-owned enterprises (WFOEs).
For example, Standard Chartered Bank said it would distribute Schroders’ China Zhihui No. 1 private fund through a special asset management plan from China Southern Capital Management, a subsidiary of China Southern Asset Management, the report said.
This is the first instance of a bank committing to sell a WFOE private fund.
Other distributors
Local banks are the most preferred channel for domestic managers selling their funds, the research firm said.
However, foreign players may look at working with securities firms and independent financial advisors, since they are more flexible than banks and have more clients familiar with high-risk investments, such as equities and alternatives, according to the report.
For example, Singapore-based Fullerton Fund Management, which runs a WFOE, has tied up with Galaxy Securities, one of China’s largest brokerages and investment banks, to sell its private fund, the report said.
Value Partners has also partnered with China Merchants Securities to distribute its funds.
Other WFOE managers are also in discussion with Noah Holdings, although none have formally announced collaborations, the report added.
William Ma, Hong Kong-based co-chief investment officer at Noah Holdings in Hong Kong, confirmed such discussions, but did not elaborate: “We are in discussion with a few new ones so it is too early to tell [if we will distribute their products],” he told FSA.
The firm has an existing partnership with JP Morgan Asset Management via its Shanghai-based joint venture.
The private fund market
In total, the private fund market, which includes HNW and institutional investors, has RMB 12trn in assets, according to the Cerulli report.
Around 38% of private fund managers (PFM) in China, including foreign and domestic players, focus on private securities funds (PSF, or China’s name for mutual funds in the private fund market), which are estimated to have assets of RMB 2.6trn.
HNWIs in China contributed 37% of PSF assets at the end of 2016, according to the report.
PSF managers prefer to target HNWIs when raising funds for their first batch of products, since institutions normally require managers to have track records of at least one year.
As of this writing, there are 14 PFM WFOEs who are registered as PSF managers, according to data from the Asset Management Association of China. In total, 18 PSF funds have been launched by these foreign players.
