According to the latest report, China is a powerhouse of Asia’s asset management industry, representing 37% of the region’s AUM. The figure is expected to grow further at a pace of 17% annually over the next five years.
While many global managers desire to capture China growth, “higher risk appetite is required in order to gain a foothold in China,” according to Anu Sahai, senior advisor at Mckinsey & Company.
“What we tell clients who are entering into China is that it is a minimum three-year investment before you start seeing returns,” she added.
Sahai explained to FSA that the firms’ experience elsewhere in the world may not apply in the China market.
However, selecting the right distribution partners and being agile for rapid regulatory changes can help the managers understand and adapt to the unique market.
A sound partnership with the right local distributors, namely bank and brokerage houses, is essential for global managers. She added that a good relationship means an alignment of mid- to long-term goals and expectations and agreement on role and responsibility.
Fund managers with an onshore presence told FSA that distribution to mainland investors was not easy for global managers which typically lack an onshore track record and brand recognition in China, FSA previously reported.
On regulation, the mainland authority enacted rules in curbing the growth of shadow banking assets in an attempt to better manage potential systematic risk in the financial system. Under such an environment, the consultancy noted that it requires some flexible yet active attitude from asset managers operating onshore. As the regulation remains ambiguous and strict, managers should actively engage with local regulators, she also suggested.
Today, foreign managers set up in China through two major structures: joint ventures and wholly foreign-owned enterprises (WFOEs). Joint ventures are eligible to manufacture public funds targeting retail investors while the latter distributes only to high net worth and institutional investors.
As of today, there are roughly 40 Sino-foreign joint ventures established on the mainland versus 14 IM WFOEs with private fund management licenses, according to FSA research.
No one-size-fits-all model
In terms of business structure, she said she believes there is no single ideal model for all overseas managers. The strategy depends heavily on the firm’s characteristics and the desired growth model. “It is true that some managers running a successful JV are not necessarily interested in setting up a WFOE and selling private funds,” she added.
Sahai estimates, in China, that local managers should continue to dominate the market over the near term as it takes much time for the new foreign players to establish a brand name and track record.
It is too early to say whether foreign firms will overtake the market but she said the rapid growth and scale of the market provide room for all players.
Apart from a clear China business plan, the report found that the common features in the group of fast-growing asset managers in Asia include a long-term strategy, diversified product range and use of digital tools.
The report, released this week, surveyed 25 CEOs and CIOs at asset managers in the region.
