China’s fund managers benefit from bank-backing

Among the top 20 largest fund management firms in China, those backed by banks showed the year-on-year profit growth of 48% on average, according to the firm’s 2017 China asset management report.

Their non-bank-backed peers saw only a 2% growth in their profits on average, the findings of the report showed.

Top 10 largest fund management firms in China

Source: Cerulli Associates, *bank-backed firms

Miao Hui, the Singapore-based senior analyst who leads the China research initiative at Cerulli, told FSA that bank-backed fund managers had advantages in gaining assets and in distribution.

“Most banks give priority in sales to their affiliates’ funds, and these affiliates also top the list of the parent banks’ outsourcing business,” she said.

Banks will not put all eggs in one basket, however, and will also sell funds from other companies, she noted.

Asset management firms that are not backed by banks are still able to attract assets from banks, especially those without affiliate fund management companies, and other institutions.

“Fund track record and relationship management with clients are both important for managers to compete with peers,” Miao said. “Most wholly foreign-owned enterprises (WFOEs) lack these two things, beacuse they are still at an early stage,” she added.

The only non-bank-backed firm that saw large profit growth was Tianhong Asset Management. It manages the world’s largest money market fund, Yuebao. The fund, which reached RMB 1.43trn ($210bn) in AUM in the first half of 2017, is distributed via Alibaba’s online payment platform.

Six fund management firms in China reported net profits of more than RMB 1bn in 2016, according to the Cerulli report. They are: Tianhong Asset Management, ICBC Credit Suisse Asset Management, China Asset Management, E Fund Management, Bank of China Investment Management and China Universal Asset Management. 

Overall, the average net profit margin for the top 20 managers was 30.8%. The average profit yield, which measures how much managers earn for each dollar they manage, was around 28.3bps. These results were similar to the 2015 figures of 30.4% and 28.5bps, respectively.

Miao noted that managers specialising in structured funds had been hurt last year due to regulatory constraints on these funds.

Managers should expect even greater regulatory scrutiny and fierce competition this year, as investment products continue to proliferate despite the relatively weak market sentiment, the report noted.

Many managers told Cerulli that they planned to hire more salespeople and improve their distribution networks this year – factors which could affect operating costs in 2017, the report added.