Opportunities for advisory work will explode in China’s asset management industry as securities firms increasingly expand into alternatives and futures where their experience is limited, predicts Z-Ben Advisors.
The Shanghai-based consultancy points out that alternative asset management is beginning to mature in China, with Guangfa Securities the latest to turn its attention to the sector.
GF Securities has unveiled plans to establish a subsidiary – tentatively named Guangfa Alternative Investment Company – with Rmb2 billion ($313 million) to invest in assets outside of normal proprietary targets such as stocks, interbank bonds and OTC products.
The firm also intends to inject Rmb500 million into existing subsidiary Guangfa Futures, bringing its total registered capital to Rmb1.1 billion. It comes after rival Citic Securities made a similar move by injecting Rmb300 million into Citics Futures.
There has been a flurry of moves into alternatives and futures as brokerages confront limited growth in traditional business lines, notes Francois Guilloux, regional sales director at Shanghai-based consultancy Z-Ben Advisors.
“Capital injections on the part of major players are a very clear indication that the securities industry is preparing to expand aggressively in these areas,” he says, adding that firms which previously ruled out investing in China’s alternative asset management sector may be forced to re-evaluate.
No fewer than 17 listed brokerages have refinanced Rmb11.65 billion in direct investment, futures subsidiary or their asset management businesses as of the start of this month, notes Z-Ben.
Among them, Founder Securities announced plans recently to inject Rmb1.6 billion into Founder Healthcare Fund, increasing its registered capital to Rmb1.8 billion; and in July, Haitong Securities injected Rmb1 billion into private equity player Haitong Kaiyuan Investment.
GF Securities itself has sent Rmb200 million to direct investment subsidiary Guangfa Dexin.
“Many institutions appear keen on moving towards a system of relatively closed architecture, and brokerages have made significant strides in this direction by becoming heavily involved in alternative assets and direct asset management,” says Guilloux.
He points out that while banks have seen a surge in popularity for their wealth management products, they will face additional regulation limiting use of this practice to fuel credit growth.
Still, Z-Ben expects different segments of China’s financial industry to move in this direction, and says how regulators respond will help to determine the future shape of the industry.
“For the moment, rapid expansion into alternative assets is the name of the game,” says Guilloux. “That alternative assets are growing in popularity should be of particular interest to firms seeking to set up their own platforms within China, potentially through a wholly owned foreign enterprise.”
UBS Global AM (China) was registered in Beijing this July and its scope of business appears to focus on providing investment solutions for high-net-worth individuals and institutional investors, potentially by using a trust platform to attract funds.
“Even if direct asset management in the alternative space is deemed too risky [given the opaque regulatory environment], a host of opportunities for advisory work will begin to emerge as brokerages enter non-traditional business lines in which they have relatively limited experience,” concludes Guilloux.