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Which firm will become the `Fidelity of China’?

A winning Chinese AM model is not just about scale but strategic M&A and cooperation with foreign managers, according to consultancy firm Casey Quirk, a part of Deloitte.
business woman holding shining key in a dark

“A global asset management leader in China won’t be produced organically,” said Daniel Celeghin, head of wealth management strategy in Asia Pacific. He expects a clear home-grown global leader to emerge in five years, catalysed by mergers and acquisitions. However, declined to name a specific firm that could become the “Fidelity Investments of China”.

Celeghin defines a global leader to be a provider of one-stop access to all major products or asset classes.

Because Chinese managers face hurdles in establishing brand presence and physical operation overseas, M&A will help the managers grow investment capacity and distribution channels abroad, Celeghin explained.

Chinese asset managers will likely find acquisition targets in large scale US or European firms. However, M&A in asset management is rife with potential problems, FSA reported earlier.

Criteria of an emerging global leader includes a solid balance sheet to support overseas expansion and maintaining a solid foundation in China. “Their first focus should be on both onshore and offshore Chinese wealth,” he said.

Joint ventures with foreign asset management firms have been one way for Chinese fund houses to start building offshore distribution channels, though this has been confined to passive products. Harvest, for example, partnered with Deutsche AM to launch ETFs in London and New York. ChinaAMC partnered with Van Eck Vectors (formerly Market Vectors) to launch index funds in the US.

China’s future industry giant, however, may not be a pure-play asset management house. Two potential candidates for leadership are NYSE-listed wealth managers with asset management units, Noah Holdings and Jupai Holdings. Both have a large mainland operations as well as US offices and are expanding in line with their ambitions.

Domestic king

At least one Chinese asset manager is forecast to rank among the top 10 globally, in terms of assets, by 2030, according to a report authored by Celeghin. However, the AUM will most likely be sourced from domestic investors for onshore products.

Chinese investors prefer onshore assets and therefore the mainland will continue to be dominated by domestic firms. The share of foreign managers will be limited to about 6% by 2030, according to the report.

AUM in China is expected to increase to $4.3trn by 2019 from $2.8trn today and the country will account for nearly half of the global industry’s net new flows, the report said.

Also in 2019, China is expected to overtake the UK as the second largest asset management market after the US. The growth in assets will be mainly driven by retail and high net worth investors, Celeghin said.

Part of the Mark Allen Group.