Time to review China's fund house tally: Z-Ben

Chinese trust companies and brokerages’ asset management arms have often not been considered true fund managers in the past, and Shanghai-based Z-Ben Advisors says it’s high time that changed. 

“Our hope is that an enhanced view of China’s top asset managers will help sharpen readers’ assessment of mainland business development prospects, and better compare them to other regions when client targeting and resource allocation decisions are made,” says Z-Ben.

In early November, investment consultancy Towers Watson included 31 Chinese firms in its widely referenced list of the 500 largest asset managers globally (up from eight in 2014). Z-Ben has argued in a new report that 115 firms would have made the cut if Chinese trusts and brokerage firms’ asset management arms were included.

A key question is whether segregated account (SA) subsidiaries – tailor-made products and mandates for institutions and wealthy individuals – should be included in the AUM calculation alongside core mass-retail mutual fund business. Z-Ben believes they should be, and says this would mean trusts and brokerage AMs should be counted.

That would bring 60 trust companies and 30 brokerage-owned asset managers into Towers’ global 500 list. Trust companies and brokerages held a total of Rmb14 trillion ($2.2 trillion) and Rmb8 trillion in AUM, respectively, as of end-2014. 

Z-Ben admitted that determining which types of firms and assets – and the amount of assets – to include was tricky, due to the difficulty of sourcing accurate data in the mainland investment industry. 

Public disclosure and self-reporting, the two main inputs for Towers Watson’s rankings, remain unreliable in China, a point that Towers Watson acknowledges, noted Z-Ben. To give clients a means of comparing Chinese and global AUM directly, the Shanghai firm has applied Towers Watson’s methodology to Chinese asset managers using industry group or difficult-to-source data generated by Z-Ben’s own research.

It was argued in the past that fund houses’ SA assets should not be included because they largely comprise debt financing or packaged loans business. But SA subsidiaries have been starting to transform themselves into true asset managers. 

For example, most licence-holders in Shenzhen’s qualified domestic investment enterprise (QDIE) programme are SA subsidiaries; some firms, such as Harvest Capital, an SA subsidiary under Harvest Fund Management, have started to manufacture private property funds.

“I think [SA business] should be considered,” said Michael McCormack, executive director at Z-Ben. “[Even] if it is not included in the ranking, people should pay attention to it; it is a source of liquidity and important to track.”

In Tower Watson’s research, it is likely that most fund managers’ SA assets are included. For instance, ChinaAMC is credited with $86 billion in AUM in the global 500 list, while it had $52 billion in pure mutual funds at end-2014, according to data from Galaxy Securities.

But Z-Ben’s calculations suggest that 25 Chinese asset managers would make the list, in addition to trust and brokerage AM businesses, making up the total of 115. This further underlines the difficulty of sourcing the right data.