US-based JP Morgan Asset Management has been named as the top foreign fund house in China in a ranking of global asset managers by the strength of their onshore, inbound and outbound business on the mainland (see table).
In the report, Shanghai-based Z-Ben Advisors said outbound business – which mainly comprises running mandates for mainland asset owners – was the highest-risk business because of very fierce competition. Hence the importance of fund houses diversifying their business lines in China, it noted.
To create the ranking, Z-Ben used a benchmark to assess three business lines in China for global fund managers – namely, onshore (50%), inbound (30%) and outbound (20%). They are weighted in order of their importance as opportunities in China, with outbound given the smallest weighting due to the high level of competition.
The methodology assesses 36 quantitative and qualitative factors and includes fund house data as of end-2015. The survey covers more than 100 firms.
Rounding out the overall top five were Swiss firm UBS Asset Management, France’s BNP Paribas Investment Partners, US-based Invesco and the UK's Schroders.
|2016 China Rankings|
|Overall||Firm||Country||Onshore rank||Outbound rank||Inbound rank||Total|
|1||JP Morgan||United States||1||2||10||51.1|
|10||Prudential Financial||United States||10||17||20||27.8|
|13||Value Partners||Hong Kong||36||9||9||24.6|
|14||Allianz Global Investors||Germany||7||42||47||23.7|
|18||Franklin Templeton||United States||23||3||116||20.4|
|19||Goldman Sachs||United States||28||7||53||18.7|
|20||Morgan Stanley||United States||11||56||88||17.7|
Source: Z-Ben Advisors
The top five fund houses recognised the opportunity set on the mainland and have on-the-ground teams to understand the risks and communicate with senior management overseas, said Peter Alexander, managing director at Z-Ben. The ranking reflects they have set up and executed their China strategy relatively better than their peers, he added.
In addition to its overall success, JP Morgan AM is ranked the top firm for China onshore business, which refers to mainland joint ventures, wholly foreign-owned enterprises or any business that raises money domestically and invests in the mainland market.
Z-Ben said the Chinese mutual fund industry provided robust opportunities for asset gathering and profitability as result of industry growth. It estimated that mainland mutual fund assets could more than double to $3 trillion in the next five years, from $1.3 trillion as of end-2015.
“Ultimately, the biggest risk in China is unplanned-for upsides – meaning if you have not positioned to take advantage of opportunities, you are going to miss out while competitors will build their advantages,” Alexander said yesterday.
Schroders is ranked top in terms of outbound business, which includes mainland asset owners’ overseas mandates, assets gathered via the qualified domestic institutional investor (QDII) programme and any other sub-advisory business.
Z-Ben said outbound was the business line at highest risk, despite the fact that it was likely to see stellar growth. It projected that outbound flows from China would leap nearly sixfold to $532 billion by end-2021 from $90 billion in 2015.
Outbound business is the area that all asset managers are targeting in China, said Alexander, because they consider it relatively easier to target since they can run it on a fly-in, fly-out basis. “It is very competitive. [Mainland asset owners] are able to apply significant pressure on fees.” And competition has increased significantly over the past 12 months, he added.
Meanwhile, Korea’s Samsung Asset Management is ranked as the top player for inbound business. This refers to assets gathered from Greater China fund businesses and via quotas and inbound investment such as through the qualified foreign institutional investor (QFII) scheme and its renminbi equivalent (RQFII).
Alexander said Samsung AM had recorded strong growth in its RQFII business and significant inflows into its Greater China funds, without providing figures. But he pointed out the firm did not have a diversified approach in China, as it is relatively weak in onshore and outbound business.
Some of the largest global fund firms, such as Vanguard and State Street Global Advisors, are absent from the top 25 ranking. Z-Ben said this was because of their low activity levels in at least one of the three business lines.