Global managers must show edge in China: Bain

Global asset managers looking to enter China will need to prove they can offer something different, as the mainland regulator does not really need new active managers of mutual funds, speakers told a forum in Hong Kong this week.

In addition, while the mainland mutual funds industry is already big and growing fast, market participants said digital distribution and private fund managers would shape the industry. 

“The biggest challenge for [foreign] asset managers to enter China is to make a case for their entrance,” said Alfred Shang, Beijing-based partner at private equity firm Bain & Company, speaking at the Fund Forum Asia in Hong Kong this week. 

“From the regulator’s point of view, they really don’t need a new active manager,” he added. “They don’t need a global fund manager to come to the market and charge 2% fees." 

The onshore fund managers are quickly learning to provide international exposure, so global managers need to differentiate themselves in other ways, Shang said. This could mean providing low-cost passive or exchange-trade funds, smart-beta exposure or mobile digital distribution.

Taking a similar view, Chris Powers, consulting manager at Shanghai-based Z-Ben Advisors, pointed out that the mainland already had more than 100 mutual fund companies. These fund firms’ segregated-account subsidiaries, which mainly offer debt financing or private equity products, had total assets of $1.32 trillion at end-2015, exceeding the $1.28 trillion in mutual fund assets, he noted.

Of course, some foreign asset managers – such as JP Morgan, UBS and BNP Paribas – have built successful and diversified businesses in the mainland market, according to a recent ranking of the top global players in China, as reported.  

Meanwhile, e-commerce giant Alibaba’s move to distribute a money-market fund (MMF) electronically marked the start of a trend for many more players to enter this space, said Lieven Debruyne, Hong Kong chief executive and Asia head of distribution at Schroder Investment Management, speaking on another panel. 

“I think it [Alibaba’s MMF, YueBao] is exceptionally powerful,” he added. “China has so many individuals transacting through online and mobile devices.”

Powers pointed to digital distribution as one of the few areas where China was leading the world. This is the first time many Chinese individual investors have accessed financial services using mobile applications, he added, and it is an area where there is less regulation to contend with.

Bain’s Shang noted that the Chinese market funds industry “does not have historical baggage” on this front. “We always look at it as a new market which may repeat the story of the United States or Taiwan; the fact is that China is so different,” he said, adding that trends around digital distribution and private equity in China may shape the industry.

Certainly, there is a robust flow of firms – including private managers – seeking mutual fund licences. A total of 32 applications are awaiting approval by the China Securities Regulatory Commission. Among them, there are four private fund managers, namely Chongyang Investment, Gopher Asset Management, Hillhouse Capital and VStone Capital.

Mainland private equity firms Hony Capital and JD Capital and online fund sales platform Tiantian have already set up mutual fund arms.