Chart: Approvals for foreign MF firms climb in China

The pace of approvals for overseas mutual fund houses to set up wholly owned businesses in China is quickening.

In the first three months of 2023 alone, four foreign fund houses  - AllianceBernstein, Morgan Stanley Investment Management, JP Morgan Asset Management and Schroders – have received the regulatory go-ahead to either take full control of their existing joint ventures to sell mutual funds onshore or set up a new wholly-owned mutual fund business.

Apart from the strong potential of the domestic mutual fund industry, China kickstarted its private pension scheme last year, which includes mutual funds as a key product offering.

Hence, there is also heavy interest from foreign managers with an expertise in pensions to capture the opportunities arising from the wide retirement funding gap in a rapidly ageing China.

China first scrapped foreign ownership limits in the mutual fund sector in April 2020.

Until 2022, only one foreign firm – BlackRock - had won approval to set up a wholly-owned unit in the country's mutual fund space.

The global fund giant got the nod from the China Securities Regulatory Commission to establish a wholly foreign-owned entity in August 2020. 

However, after that, applications were frozen during the three years of Covid-19 restrictions in the country.

HIGH POTENTIAL

China’s mutual fund industry holds tremendous potential, according to observers: domestic mutual fund assets totalled Rmb27.25 trillion ($3.97 trillion) at the end of January, almost doubling from Rmb15.5 trillion three years ago, latest data from the Asset Management Association of China showed.

Even the number of mutual funds managed onshore climbed over that period to 10,607 from 6623.

When China started to drop Covid-19 restrictions and open up social activities in November 2022, the regulator re-ignited foreign fund managers’ enthusiasm in China’s trillion-dollar industry by approving at least seven firms’ applications to run onshore mutual fund businesses as wholly foreign-owned entities.

Of course, the domestic market is already crowded with competition and getting the nod to set up shop represents the ability to just get a foothold in this potentially lucrative market.

There were 156 mutual fund managers in China, with Chinese fund houses dominating the top 10 spots by total assets under management at the end of 2022.

Among the top 20 players, three are joint ventures partly owned by foreign fund houses. They are ICBC Credit Suisse Asset Management (11th), Bank of Communications Schroder Fund Management (13th), and Invesco Great Wall Fund Management (14th).