New research indicates that China Asset Management was the most profitable mainland mutual fund house last year by outright profit, while Aegon-Industrial Fund came top for profit yield – how much a firm earns in basis points per assets they manage (see table). But industry profitability is seen as likely to fall this year amid tighter regulations and market volatility.

The 20 biggest Chinese mutual fund houses posted an average net profit margin of 30.4% and profit yield of 28.5 basis points last year, according to the study by Boston-based Cerulli Associates.

Equity and bond managers and structured fund providers were the most profitable players in 2015, while money-market managers did less well on this front due to the lower management fees they charge, said Hui Miao, senior analyst at Cerulli in Singapore.

After China AMC, ICBC-Credit Suisse and E Fund posted the biggest outright profit last year, while Aegon-Industrial Fund and Fullgoal recorded the highest profit yield. The latter two firms achieved profit yields of 59.2bp and 56.9bp, respectively, against an average of 28.5bp for the 20-strong list.

This is the first time Cerulli has done research on mainland asset managers’ revenue and profit. It calculated net profits as management fees charged less operating costs.

China's 20 biggest mutual fund managers in 2015 (listed by size of profits)
Rank
(profit)
Company AUM
(Rmb bn)
Net profit
(Rmb mn)
Profit yield
(bp)
1 China AMC 535.8 1,414 26.4
2 ICBC-Credit Suisse  446.8 1,290 28.9
3 E Fund 555.8 1,190 21.4
4 Fullgoal Fund 205.2 1,167 56.9
5 Tianhong AM 666.6 1,125 16.9
6 China Southern Fund 298.0 1,093 15.2
7 Harvest Fund 326.7 985 30.2
8 China Universal 251.3 940 37.4
9 GF Fund 324.5 893 27.5
10 BOC IM 277.8 743 26.7
11 Penghua Fund 172.8 678 39.2
12 Aegon-Industrial Fund 113.1 669 59.2
13 Bosera AM 203.6 601 29.5
14 Yinhua Fund 151.2 550 36.4
15 China Merchants Fund 250.0 548 21.9
16 CCB-Principal AM 314.5 478 15.2
17 Da Cheng 185.7 281 15.1
18 CIFM 185.6 181 9.7
19 Fortune-SG Fund 182.4 99 5.4
20 HuaAn Fund * 135.5 - N/A

*HuaAn Fund's data is unavailable or cannot be estimated
Open-end and closed-end funds included, ETFs excluded
Source: Cerulli Associates 

Companies offering more products that charge higher management fees will be the most profitable, said Hui. Fullgoal’s high profitability is mainly driven by structured funds, which were popular last year. The firm is the biggest provider of such products, offering 10 structured funds, charging 1% in annual management fees.

Tianhong, the biggest mainland manager with Rmb667 billion in assets, recorded lower profit yield than most others on the list. Another three firms – CCB-Principal, China International Fund Management (CIFM) and Fortune-SG – also had notably low profitability.

The proportion of money-market funds (MMFs) these firms run, combined with their marketing expenses, may help explain their relatively low profit yield, Hui said. For instance, YuEBao, the biggest MMF, charges an annual management fee of 0.3% and represented 92% of Tianhong’s AUM at the end of 2015.

However, Hui said Chinese managers would find it hard to maintain similar profit levels this year due to volatile market conditions and stricter regulatory rules on risk controls.

The China Banking Regulatory Commission has told banks not to sell newly launched structured funds because of market volatility, while the China Securities Regulatory Commission has suspended approvals of guaranteed funds due to its concerns over the liabilities that managers are taking on to provide the guarantees. Both moves came in May.

Hui noted that mainland asset managers had been employing two main strategies to boost profits: launching new funds and offering segregated-account services.

In separate research released last week, Cerulli said China would be a major revenue source for global asset managers in the next five years, leading Asia ex-Japan. The latter is the world’s fastest growing region by mutual fund assets, which rose 12.7% in 2015, and Cerulli forecast that it would deliver compound annual AUM growth of 12.3% until 2020.

Chinese fund houses’ AUM fell 4% to Rmb8.1 trillion in the first five months of this year, according to the Asset Management Association of China. Despite slower growth and a tough start to 2016, Hui said China was still a key revenue source because of its huge size.