Chinese AM firms starting to think regionally, says report

19 November 2013   Category: News, Asia, China, Global   By Asia Asset Management

A spate of regulatory changes has unleashed opportunities for Chinese asset managers to potentially expand into regional markets, says a report from Cerulli Associates entitled Asset Management in China 2013. As the domestic market gets tougher, with mutual fund AUM still below 2009 levels, many managers are venturing abroad, it says.

However, this is easier said than done. A big obstacle to their internationalisation is that Chinese fund houses still face distrust in areas like compliance and risk assessment processes. They are making up for this by playing up their Chinese market expertise and hiring executives with overseas experience to demonstrate their commitment to better governance and an international outlook.

In particular, the Qualified Financial Institutional Investor (QFII) advisory business remains very important to Chinese firms in Hong Kong: "Recent QFII activities have centred on institutions in Asia," says Rachel Poh, an analyst with Cerulli who contributed to the report.

"Prior to 2011, there were 34 Asia-based institutions that received their approvals and quota (excluding Hong Kong). Since then, 39 more have been added to the list as of August 2013, with 25 of those coming in 2012," she adds.

Some Chinese asset managers are directly pitching to prospective clients, while others prefer to go through networks or consultants. However, Chinese private funds present strong competition in the sphere of QFII advisory services.

"These firms tend to be favoured by consultants because the managers have equity stakes in the firm and their interests are seen to be better aligned with clients," says Felix Ng, a senior analyst with Cerulli who led the report.

The Renminbi Qualified Financial Institutional Investor (RQFII) programme offers an insight into the intense competition in the market. With the programme expanded to London, Singapore, and likely soon to Taiwan, the outlook for RQFII opportunities appears mixed in Hong Kong where many Chinese managers have a presence-some see room to develop more RQFII exchange-traded funds (ETFs), while others worry about whether the RQFII ETF market is becoming saturated.

"The launch of China Universal's CSI 300 Index ETF in July might serve as a good barometer on whether such sentiments hold true, given that China AMC launched an identical ETF a year ago," Mr. Ng adds. As at end-August this year, China Universal's CSI 300 ETF only had AUM of 812.3 million RMB (US$131.3 million) while China AMC's ETF had AUM of 9.3 billion RMB. "Regardless, RQFII ETFs will see more listings beyond those of Hong Kong. The recent partnership between Harvest Global Investment and Deutsche to launch a CSI 300 Index in New York could be an example of an emerging business model for internationalisation of RQFII ETFs in the near future," Mr. Ng said.

Meanwhile, from a regional perspective, major Taiwanese Financial Holding Companies (FHCs) such as Cathay, Fubon, and Yuanta Polaris are setting up joint ventures on the Mainland via their asset management arms. Further, a handful of other Taiwanese firms are reportedly in talks with Chinese asset managers in Hong Kong on strategic partnerships relating to distribution and research. However, the expected advent of the mutual recognition arrangement (MRA) between Hong Kong and China is causing Taiwanese asset managers to rethink their strategies for Greater China. They believe foreign investors might choose to go directly to Chinese mutual funds that are likely to be offered in Hong Kong under the MRA.

Nevertheless, these firms appear likely to increase their footprint in Greater China in the near future. "Taiwanese FHCs' interest in China goes beyond asset management. Many of them have banking, insurance, and securities businesses as well, and will be looking to expand those lines of business in China too," says Ken Yap, Singapore-based director and head of Asia-Pacific research at Cerulli.