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Report: Foreign managers to take 25% of China’s market

In a decade, global asset managers are expected to hold 25% of China's mutual fund industry assets due to regulatory changes and the competitiveness of the foreign firms, according to a report by Shanghai-based consultancy firm Z-Ben Advisors.
Report: Foreign managers to take 25% of China's market

The report covers foreign asset managers’ participation in China’s public mutual fund industry, which includes retail, institutional and high-net-worth investors.

It expects the number of mutual fund firms to grow to 200 in 2027 from 125 last year.

The report forecast that in 2027, 50 of the 200 are expected to be global managers, but only one foreign firm is likely to make it into the top ten, ranked by assets.

Source: Z-Ben Advisors

The consultancy said the easing of China’s financial regulations is a major reason for the expected increase in foreign manager participation onshore.

In November, the Chinese authorities announced plans to relax and eventually remove the foreign ownership limits of domestic asset managers and other financial institutions. The ceiling of foreign holdings in fund houses has been lifted to 51% from 49% and the cap is expected to be removed entirely in three years. China has typically applied ownership limits to Sino-foreign JVs to protect domestic groups from competition while introducing some foreign expertise to the market.

Following the relaxation of rules, foreign managers are expected to take full control in any acquisitions of fund management firms in China. The business models and best practices of the foreign firms will enable them to expand their presence on the mainland and diminish local dominance, the report said.

Currently there are 22 asset management joint ventures established in China by managers that rank among the top 50 global firms, according to another report by Z-Ben. At the end of 2017, the joint ventures had an aggregated AUM of RMB 885.4bn ($140bn), representing 989 actively-managed mutual funds (excluding money market funds) on the domestic market, FSA‘s research has found.

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China’s mutual fund industry is expected to become more mature following the China Securities Regulatory Commission’s launch of standardisation guidelines for asset management products. The guidelines are aimed at controlling the booming asset management industry and minimising financial industry risk.

Rachel Wang, director of manager research for China at Morningstar, told FSA that a more transparent and better-scrutinised environment would benefit foreign asset managers in China as these Sino-foreign enterprises are generally more prudent in designing their products and operations. They will therefore be less impacted by the frequent regulatory moves made by the Chinese authorities.

At the same time, Z-Ben believes more domestic firms will move beyond money market funds, which account for 59% of total AUM in China, and develop active equity, balanced and passive strategies.

By 2027, AUM of the entire industry is expected to balloon 5.6 times to reach $12trn, compared to $1.8trn in 2017, the report forecast.

If the report’s prediction is accurate, foreign firms would then account for $450bn of assets under management, up from roughly $140bn today.

Part of Mark Allen.