Global fund firms prepare for faster Chinese liberalisation
This month's surprise announcement that wholly foreign-owned fund management companies are to be allowed in China from 2020 – one year ahead of schedule – has inevitably sent a frisson of excitement through the global asset management industry.
However, major challenges lie ahead.
“This topic is high on the agenda of many global players because China is a market that no one can ignore,” Sally Wong, chief executive of the Hong Kong Investment Funds Association (HKIFA), told AsianInvestor.
But setting up a Chinese fund management company to tap the country's huge mass market will likely require a lot of careful planning as well as huge amount of resource – at least two dozen staff members just to begin with, primarily of a senior or at least middle-senior level, Wong estimates.
That's not just because of the size of the Chinese market but also because of the high importance attached to professional qualifications and backgrounds, she said.
So competition for the best local talent as the industry grows is likely to be intense, a point echoed by David Guo, head of China business at Schroders.
Another consideration relates to distribution. In China, fund houses rely primarily on banks to distribute funds, even though alternative channels such as digital are emerging.
So foreign fund firms will have to work hard to demonstrate themselves to get onto the bank shelf, especially when the top 5 or 6 banks account for the lion’s share of fund sales, Wong said.
In addition, fund managers will find it more challenging to integrate their systems in China with their global ones, especially as China has specific requirements on data storage and cross border transfer of data, she said.
NEW ERA
The State Council announced on July 20 that wholly foreign-owned fund management company applications would be accepted from next year, along with a series of other measures.
The China Securities Regulatory Commission (CSRC) on the same day said the accelerated plan was part of its continuing drive to liberalise the country's financial sector.
For the global fund firms, it represents a significant milestone – the potential opening up of the world's most populous country to their products and services.
So it's no surprise that the news has been greeted enthusiastically by fund firms. The following are a selection of comments from people AsianInvestor spoke with:
- “We are encouraged by China’s commitment to further opening the asset management industry, the potential prospect of building a mutual fund business onshore is exciting, [though] it may take some time for the regulators to further shape the policy and develop clear guidelines,” said Ian Macdonald, deputy head of Asia Pacific, Aberdeen Standard Investments.
- “China’s opening up of its private fund market is a huge opportunity … Now, with a full licence in sight, the other half of China’s fund industry would also be opened up to global asset managers,” said Mark Li, general manager of Fullerton Shanghai.
- “Fidelity was the first global asset manager to register with the Asset Management Association of China (Amac) as a private fund management (PFM) company. Ultimately, we aim to offer mutual funds in China which will allow us to ... reach a wider group of investors in the country,” said Jackson Lee, China country head at Fidelity International.
China originally said last year that the foreign ownership cap of joint-venture securities firms, fund managers and futures companies was being relaxed to 51% and there would be no such limit by 2021.
At present, global fund firms have to set up investment management wholly foreign owned enterprises (IM WFOEs) in China and obtain PFM licences from Amac, before they can launch private funds to high net worth individuals and institutional investors. They are not allowed to offer mutual funds to retail investors.
From January 2017 through July this year, 21 foreign IM WFOEs had been granted PFM licenses in China – the latest ones being Barings and Nomura this month.
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