Thu, Jul 24, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Asia Pacific Intelligence

Cerulli report claims China's largest asset managers will go global in five years

Wednesday, January 09, 2013

On the back of regulatory change instituted by Guo Shuqing, chairman of the China Securities Regulatory Commission and other drivers for growth in the Chinese asset management industry, Cerulli Associates projects that the Chinese mutual fund industry's assets under management will grow at a four-year compound annual growth rate of 13.3% to RMB3.9 trn (US$614.1 bn) by 2016.

Cerulli believes that Chinese investors will walk away from their direct equity culture and return to equity funds by 2014 or 2016. But the firm warns that the progressive, fast-paced regulatory moves will benefit only the largest asset managers.

The Cerulli Quantitative Update: Asset Management in China 2012 says the new regulatory direction has several side effects. "It creates simultaneous competition from other segments of the financial services industry, such as securities companies that are now allowed to create and sell a wide variety of products without having to seek approval from the regulator" the firm writes.

"Securities companies' new investment parameters include commodities futures, interest rate forwards and swaps, asset management products investing into securities firms' special projects, and wealth management schemes from commercial banks and trust companies" Cerulli says.

"These are the types of assets that wealthy investors prefer, which means securities companies now have improved capability to attract them. In contrast, asset managers must still go through several weeks of product approval process and are limited in the types of assets they can invest in. This means that Chinese asset managers do not have an equivalent arsenal to attract investors through a variety of market cycles and conditions" the study finds.

"Only the largest, most well-resourced asset managers that are able to gain the confidence of the Big Four bank distributors and be the first one or two firms to launch new products can compete in this new environment," says Ken Yap, head of Asia-Pacific research at Cerulli Associates. Cerulli's data show that only the first product of any kind can gather substantial assets in China's retail market.

So far, the regulators have worked on broad structures such as Qualified Foreign Institutional Investor (QFII) and Renminbi QFII (RQFII) quotas and asset allocation, but Cerulli foresees a different kind of change occurring over the next two or three years. The firm believes that further regulatory moves might begin to address the industry's operational competence as China attempts to produce fund houses that can eventually compete in the global marketplace. "Currently, Chinese fund houses' risk management practices, for example, fall 30% to 40% short of globally accepted best practices. If the CSRC takes this route-which is the one Mr. Guo took when he was chairman of China Construction Bank-only the largest asset managers will be able to afford the requisite systems and experienced staff. At the same time, retail distribution costs are rising and institutional assets are fetching smaller margins.

This means that the smaller fund houses will fall behind even more rapidly" Cerullis says, expecting to see some exits from foreign joint ventures and mergers between smaller fund houses.

Looking forward, over the next five or more years, Cerulli foresees Chinese asset managers gathering assets from outside Greater China,even possibly Europe and North America. "Even the CSRC appears to be preparing to engage with the world outside mainland China, Hong Kong, and Taiwan as the regulator has begun seeking the views of global asset managers before drafting new regulations" the firm says.

"Indeed, three to five years from now, the largest Chinese firms would have earned the requisite three- or five-year track record to market their funds in the European Union or North America. The biggest firms' Hong Kong subsidiaries started funds with international structures - such as UCITS or Cayman Islands domiciles-in 2010 or 2011, and are steadying these fledglings for the global marketplace. HFT Investment Management's Hong Kong subsidiary, for example, has a Cayman-domiciled product investing in long/short Greater China equities. BOCHK Asset Management, a subsidiary of Bank of China (Hong Kong), has at least two Cayman funds with China investment strategies. Many other mainland subsidiaries in Hong Kong have similar funds".

A version of this piece originally appeared in Opalesque's AMB. You can read the original version here.

 
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.
Asia Pacific Intelligence
Asia Pacific Intelligence
Asia Pacific Intelligence
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Events – AIMA Australian Hedge Fund Forum, Sept. 16, Sydney[more]

    AIMA Australia invite you to join us at our annual Hedge Fund Forum on Tuesday 16th September 2014 at the Sofitel Sydney Wentworth. The AIMA Australian Hedge Fund Forum is a non-profit hedge fund conference organised by the industry for the industry, featuring quality Australian and internation

  2. Opalesque Roundtable: Success in hedge fund marketing not linked to performance, but investor appetite[more]

    Komfie Manalo, Opalesque Asia: Success in marketing a fund is not linked to the performance, but to investor appetite, to the way you can market the fund, and to how much time you can spend to raise assets, said Antoine Rolland, the CEO of incubator and seeding firm

  3. Opalesque Exclusive: Loeb, Grantham cite growing economic concerns in letters[more]

    Bailey McCann, Opalesque New York: Hedge fund manager Daniel Loeb, head of Third Point, and Jeremy Grantham of Grantham, Mayo, Van Otterloo & Co. have both released their quarterly investor letters today. While news is positive on some fronts, and both men see pockets of opportunity, they also h

  4. Investing – Hedge funds expect Netflix earnings to catapult forward, Third Point's Loeb takes stakes in Fibra Uno, YPF, Royal DSM, Lake Capital in talks to back Engine Group[more]

    Hedge funds expect Netflix earnings to catapult forward From Investing.com: Netflix has made major strides forward in 2014 despite ongoing battles with the FCC and cable companies over the issue of net neutrality. The FCC has now received over 500,000 comments from the public on its pend

  5. Opalesque Roundtable: European family offices struggle to retain their investments in offshore hedge funds[more]

    Komfie Manalo, Opalesque Asia: The European Union’s Alternative Investment Fund Managers Directive (AIFMD) will constrain investment opportunities amidst concern a number of U.S. fund managers will stop marketing their products in the European Union under the new rule, said Valentin Bohländer fro