A proactive social media marketing campaign will be essential for managers moving into mutual recognition, a consultancy says.
Managers have been advised to move into marketing mode early on to prepare for the launch of northbound products, even though that could be some months away.
Given that mainland China’s marketing and sales channels are different to the rest of the world, foreign managers have been told to adopt a new marketing strategy and a way of differentiating themselves from domestic products.
About 10-15 Hong Kong-based fund companies are expected to participate in the cross-border link when it goes live on July 1 this year. While distribution will be challenging, Shanghai-based consultancy Z-Ben Advisors said in a report that foreign managers will also need a heavy dose of intelligent marketing which should fit into uniquely Chinese characteristics.
“A strong and visible marketing and public campaign will be crucial, not only leading up to a fund’s launch, but ongoing throughout the life of the fund to maintain organic flows, which are likely to be dwarfed by the launch AUM,” noted Z-Ben.
Although Sandra Lu, partner at mainland law firm Llinks, said she expected a Hong Kong fund could wait between 20 working days and six months for regulatory approval, Z-Ben suggested that foreign managers should shift into marketing gear now, even before they submit fund applications, and build an on-the-ground team to support ongoing sales.
China’s fund marketing and sales channels are very different from global norms, meaning that foreign managers could step into a whole new world which requires not only a different strategy to that used overseas, but they will also need to differentiate themselves from domestic managers in China, Z-Ben said.
To become the “Prada” of mutual recognition, posters on Chinese shopping streets would not be enough; a proactive and interactive social media presence was also needed. The consultant noted the WeChat phenomenon, coupled with the rise of online platforms such as Yu’EBao and LiCaiTong.
In order to identify the right products for sales, Z-Ben noted three key fund characteristics which were likely to be successful in tapping Chinese investors: pedigree, performance and originality. “Funds that come from managers with reputational advantage in the domestic market, funds that can offer high [return] performance, and funds which have novelty value,” Z-Ben explained.
The consultant expects Hong Kong managers’ flagship funds, which can demonstrate high performance figures, could be a smart first offering for Chinese investors. Among the eligible funds, Hong Kong equity-focused funds will have an advantage, which is reflected by the demand for QDII (qualified domestic institutional investors) products.
A novelty value that translates into new investment themes has been one key characteristic in the China IPO fundraising boom this year. Z-Ben noted that China investors are buying all that is new and interesting among domestic offerings, such as state-owned-enterprises reform themes, internet themes, and products named after the Chinese government’s New Silk Road economic initiative.