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Report: China, India driving AUM growth

Asset growth in China's money market funds is expected to slow, while India may see a period of consolidation among its robo-advisors, according to Boston-based research firm Cerulli Associates.

Both China and India together account for 33.5% of Asia-Pacific’s (including Australia and Japan) $3.07trn mutual fund industry, according to an Asia-Pacific Cerulli report.

China is the largest mutual fund market in the region ($765bn), while India is the fourth ($262.3bn). The figures exclude money market funds and fund of funds.

In China, mutual fund AUM as a percentage of household financial assets reached a five-year high of 16% in 2017 from 13.1% in 2016, according to Cerulli’s global markets report.

“The expanding middle class and increasing number of high net worth individuals in China and India will help ensure robust AUM growth in both countries,” André Schnurrenberger, managing director for Europe, said in the report.

Investible wealth is also increasing. In 2017, China and India were among the markets that had the highest global growth rate of the number of billionaires, according to a Wealth-X report.

In terms of global billionaire wealth, India recorded the highest rise, up 50.3% to $299bn in 2017 from $104bn in 2016.

China’s MMFs to slow down? 

In China, money market funds will remain the primary contributor to mutual fund growth, according to the research firm’s global report.

Money market funds, which have RMB 7.43trn ($1.09trn) in assets, account for at least 66% of the country’s mutual fund assets, Morningstar data shows.

However, Cerulli expects the growth of money market funds to slow due to regulatory restrictions.

“Managers operating in China should consider the shifting focus of regulation when determining product and distribution strategies,” the report said. It added that fund of funds may bring long-term growth opportunities, especially with tax-deferred benefits likely to be introduced in individual pension plans.

Firms in China, such as CCB Principal Asset Management, the joint venture between China Construction Bank and US-based Principal Financial, plans to develop its fixed income offerings and move away from money market funds in response to the new regulations. It also plans to launch equity index products with the aim of providing more options for fund of funds and pension offerings long-term.

Tianhong Asset Management, China’s largest money market fund manager, is also now seeking alternative revenue streams away from its Yue Bao product, according to Cerulli’s Asia-Pacific report. The fund house is planning to launch more index funds tracking overseas indices and is seeking to forge more distribution partnerships.

Online drivers in India

India’s mutual fund market has grown rapidly, with AUM increasing 20% over the past four years, Schnurrenberger said in the report. India’s most recent AUM figure is $262bn.

“[This] is achieved through a combination of net flows – particularly into equity and balanced funds – and market performance,” he said.

One driver of India’s mutual fund industry is digital distribution, which is largely led by regulation, according to Cerulli.

For example, the Securities and Exchange Board of India (SEBI) launched in 2015 the MF Utility System (MFU), which is a “transaction aggregation portal” that enables investors to use a single account when investing in multiple funds managed by various participating asset management firms.

AUM under the MF Utility totalled INR 570bn ($8.12bn) as of the end of March 2017, which is five times higher the AUM in March 2016, according to a statement from the MFU.

The number of robo-advisors in India have also surged over the past year. However, Cerulli anticipates a period of consolidation in the segment “due to the absence of strategic direction, low distribution capabilities at scale and an abundance of late entrants”.

The firm expects that large distributors in India will be acquiring robo-advisors, while small independent financial advisers will close, merge with larger firms or collaborate with online platforms.

Part of the Mark Allen Group.