China will provide the “single largest growth opportunity” for global investment managers, with the country’s mutual fund assets forecast to multiply fivefold to reach $7.5tn (Rmb47tn) by 2025.
This expansion could create a fee pool for running mutual funds worth $42bn a year, a lucrative new stream of profits for international managers with an established Asian presence, according to UBS, the Swiss bank.
“The opportunity is substantial but it all depends on the progression of reform and deregulation,” said Kelvin Chu, an analyst with UBS.
China is on course to become the world’s second biggest fund market, behind the US.
Beijing unveiled far-reaching reforms in November intended to accelerate the growth of China’s under-developed investment industry with less than 5 per cent of Chinese household assets held in mutual funds.
It plans to relax or eliminate foreign ownership limits on Chinese financial services groups, including asset managers, a change that is designed to attract greater involvement by large international players.
Foreign asset managers own minority stakes in 19 of the country’s top 30 mutual fund companies, often in partnerships with domestic commercial banks.
“The lifting of foreign shareholder limits in mutual fund companies should be appealing to many [international players],” said Mr Chu.
Some global managers, including BlackRock, Vanguard and Invesco, have recently acquired or applied for wholly foreign-owned enterprise licences, which allow them to offer private funds.
The total fee pool for running private funds, separate accounts and mutual funds could be worth about $71.5bn by 2025, according to UBS.
In his annual letter to shareholders this week, Larry Fink, chief executive of BlackRock, welcomed the Chinese government’s decision to allow foreign players to acquire majority control of mainland fund companies.
“China is a significant long-term opportunity for BlackRock,” said Mr Fink, adding that the world’s largest asset manager was preparing to bring its expertise in investing, risk management and technology to mainland clients “if and when” the Chinese market opened further.
Stewart Aldcroft, Asia chief executive of CitiTrust, the securities and fund services arm of US bank Citigroup, said Beijing’s decision to allow foreigners to own 100 per cent of mainland fund management companies as early as 2020 had provided a “huge opportunity” for international players.
“The challenge is partly in comprehending the scale of the opportunity in China, as well as getting set up to participate. Many global managers are disbelieving, sitting in their offices in New York, Boston and London. They need to come and see for themselves,” said Mr Aldcroft.
He noted that about $17tn in assets is held in unregulated wealth management products.
“Chinese regulators want a large proportion of those assets to move to the regulated areas so they are making it easier for fund management companies to operate,” said Mr Aldcroft.
Retail investors in China own about 54 per cent of the shares that are freely traded in the A-shares market. Equity ownership by institutional investors is expected to increase substantially, helped by moves to include Chinese A-shares into international equity benchmarks and the development of local pension funds.
“Growth opportunities for institutional business in China are potentially substantial,” said Mr Chu.
Source: FT.com
