To compete effectively in China’s mutual fund market, foreign managers in China will need to demonstrate the advantages of their investment methods and find their niche areas, writes Cerulli Associates Singapore.
China’s RMB26 trillion (USD3.6 trillion) mutual fund market continues to attract global asset managers, and eight wholly owned foreign fund firms have been set up in the market to date. Backed by professional research teams, as well as extensive global investment experience, foreign managers can provide innovative solutions to meet the diverse needs of investors, the firm says. Foreign managers can use these strengths in areas that are relatively new to China, such as pension funds, index funds, sustainability-themed funds, and Qualified Domestic Institutional Investor (QDII) funds. They can also rely on their expertise to provide investors with more personalised and scientific programs, such as quantitative strategies and robo-adviser platforms.
Foreign fund managers with established global brands have no problem attracting investors’ attention. However, no matter how strong their financials, investment philosophies, and risk control systems are, global managers in China still need to provide excellent performance and service. Many local fund managers have started to refine their investment processes in recent years, and they are increasingly focused on the stability of investment processes and portfolio risk management, Cerulli says.
Most foreign fund managers have entered the Chinese market through joint ventures, with only a few starting their activities in the form of solely foreign-owned or foreign-controlled businesses in the past three years. This means they tend to have a smaller domestic customer base and relatively weak fund distribution channels compared to local companies. Foreign managers that are lagging in traditional distribution partnerships with banks may find it expedient to partner with other distributors. Cerulli believes that enhancing cooperation with top securities firms focused on wealth management and online platforms will bring about opportunities for growth.
Foreign fund managers also face fierce competition from local firms in attracting and retaining talent. Still, they have managed to recruit star managers who are familiar with the domestic capital market and possess local investment experience. Local talent who choose to join foreign managers tend to do so for culture reasons, as the work pressure is generally less intense in foreign firms, and they provide more attractive benefits and better work-life balance, Cerulli says.
“The entry of global fund houses has intensified competition in China’s asset management industry, but offers opportunities for the entire industry to develop,” says Joanne Peng, research analyst with Cerulli Associates. “For foreign mutual fund managers to succeed in the market, they will have to work on their ability to achieve stable returns and control the risks of their products.”