11
China: The World’s Best Opportunity for Asset Managers?
| Asset Management Overview
to actually execute trades, an
arrangement that exists only because
it works and is not explicitly illegal.
Such a setup does carry limitations,
particularly regarding how accounts
are dealt with in the event of a fund
becoming insolvent and closing.
While not a major barrier, these types
of issues have certainly limited the
segment’s growth, and the volume
of infows to the segment remains
more of a testament to how desperate
certain investors are to achieve
stronger returns.
Competitive Landscape
There are several ways to examine
the competitive landscape in China’s
fnancial industry. Intersegment
competition has become increasingly
ferce over the past several years,
with nearly all major players trying
to position themselves as full-service
providers. Banks are currently in the
best position to do so, in no small
part thanks to their extensive, and
dominant, distribution networks
(as will be discussed in detail in the
“Distribution Dynamics” section
on page 18 of this report). Fund
management companies have tried
to supplement their own physical
and online distribution capacity in an
effort to generate more sales leads
and hopefully fnd more committed
customers. Brokerages and insurers
have both moved into asset
management, utilizing their client
base (in the case of brokerages) or
substantial institutional asset base (in
the case of insurers) as a base
to develop expertise and broaden
their reach.
All of these frms rightly forecast
considerable unmet demand in the
asset management space, and if
Chinese buyers move out of their
traditional portfolios — essentially
cash under mattresses in multiple
apartment properties — into active
or passive products, considerable
windfalls await those that have
established the groundwork necessary
to deal with large infow amounts.
Within each segment, different
competitive dynamics are at work.
For fund management companies,
the largest frms unsurprisingly
have signifcant advantages.
Fixed operations costs per unit of
market share are fairly low, making
their operations that much more
competitive. Large-frm dominance
will increase over the next several
years as costs rise and turnover
becomes an even more persistent and
problematic issue. There is also the
prospect that fund managers will be
able to provide stock option incentives
for employees, something that has
in the past been resisted by existing
shareholders. If such rule changes
do in fact occur, and frms start to
adopt such programs,
turnover
and corporate governance issues
may not be as much of a problem,
which would have an extremely
positive impact on asset retention
and general health of the fund
management industry.
“Much has been made over
the lack of options for
genuine diversifcation that
are currently available for
Chinese investors. To some
extent this is true, but it is
important to remember
that product development,
at least when considering
what asset managers can
actually create, has expanded
considerably over the last
several years.”
Exhibit 6: Top 20 FMCs by Market Share and Sino-Foreign Stake
Holdings Split (as of May 2012)
Most of the largest FMCs are purely domestic ventures
Sources: Z-Ben Advisors, Wind
FMC
Market Share
Domestic
Ownership
Foreign
Ownership
China AMC
9.12%
90%
10%
E-Fund
6.66%
100%
0%
Harvest
6.13%
70%
30%
Southern
5.66%
100%
0%
Bosera
5.27%
100%
0%
GF
5.18%
100%
0%
Hua’an
3.36%
100%
0%
Dacheng
3.08%
100%
0%
Yinhua
2.85%
100%
0%
Full Goal
2.83%
72%
28%
China International
2.49%
51%
49%
ICBC Credit Suisse
2.43%
75%
25%
China Merchants
2.32%
67%
33%
Penghua
2.28%
51%
49%
China Universal
2.28%
100%
0%
Lion
2.09%
100%
0%
BoComm Schroders
2.00%
70%
30%
CCB Principal
1.92%
75%
25%
Rongtong
1.88%
60%
40%
INVESCO Great Wall
1.80%
51%
49%