The top five firms, which also includes Schroder Investment Management, Invesco and Blackrock, have significantly higher scores than the rest on the list of 25 firms, as they have stakes in fund management joint ventures as well as their own onshore investment management platform, such as a wholly foreign-owned enterprise (WFOE). They also have managed to capitalise on strong China investment demand from global investors, the report added.
Top 25 foreign asset management firms in China
Having both a JV and a WFOE is not necessary
The majority of the top 10 firms have both a stake in a joint venture and a WFOE. However, three of them only specialise in one: Fidelity only has an investment management WFOE, while HSBC Global Asset Management and Morgan Stanley only have joint venture stakes.
“What sets them apart from those lower down the rankings is that these businesses are exceptionally well run,” the report said.
Fidelity was the first foreign fund manager to establish a private fund business via the IM WFOE route and has launched the most products under the platform. So far, 11 firms have established a private fund business, with six of them having launched eight onshore products collectively.
In the case of HSBC Global AM and Morgan Stanley, both managers are “strategically well-placed in their respective joint venture fund managers”, the Z-Ben report said.
Top firms cover all business lines
Z-Ben’s overall score is calculated by adding the weighted scores of three distinct business lines: onshore business, which covers joint venture stakes and WFOEs; outbound business, which covers capital raised onshore for offshore investment, such as the qualified domestic limited partnership (QDLP) programme; and inbound business, which includes Greater China fund management capabilities and various inbound investment channels, such as the qualified foreign institutional investor (QFII) and its renminbi equivalent (RQFII) schemes.
The onshore business score has the highest weighting, followed by the inbound business, the report noted. The outbound business has the lowest weighting due to the capital outflow controls enforced previously by regulators.
In the past, it was feasible to have one good China business line and make it to the top 25 ranking, according to the report. “It’s now impossible. Managers need to have multiple leading businesses in order to reach the higher echelons of the China rankings,” the report said.
The report noted that managers lower down the list rely too heavily on a single joint venture stake or wholly-owned onshore investment platform, leaving them unable to capitalise on the demand for other business lines.
“Diversification is the key facet of the best China strategies. Growing China demand from global investors and offshore demand from Chinese investors have complemented onshore fundraising,” the report said.
Echoing the report, Jackson Lee, country head for China at Fidelity, said earlier that a foreign asset management firm that already has other business lines in China, such as inbound and outbound investment businesses, may have an easier time setting up an onshore presence.
For example, some firms that have established an IM WFOE had earlier done business in the country by establishing joint ventures, obtaining QDLP quotas or investing in China through the QFII and RQFII schemes.
“All these are important building blocks that are going into your WFOE,” Lee said.
Top 10 managers by business line
