17
China: The World’s Best Opportunity for Asset Managers?
| China’s Institutional Investors
How to Target Institutional Assets
Traditionally, China’s institutional
market has been highly concentrated
toward the three main sovereign
wealth funds (CIC, NCSSF and SAFE).
From a logistical point of view, this
has been the easiest and most
rewarding strategy to take. Foreign
frms have simply needed to fy in
and fy out, making presentations
and ensuring that ample resources
are in place to service these clients
once a mandate was awarded. There
is, however, growing evidence that
this historic strategy will need to
be radially amended as the three
primary institutional targets increase
their sophistication. Demand for a
new approach is also evident given
how new targets — insurers, pensions
and even corporate investors — have
different perspectives on where
assets need to be allocated, and at
what risk profles.
To best access
this segment, an onshore presence
will help signifcantly, if only to
coordinate the potentially complex
logistics that are required to
manage relationships with these
new emerging organizations.
In specifc terms of how best to
approach the broadening and
deepening Chinese institutional
market, there are tactics that are
recommended to be deployed as
detailed below.
Foreign asset managers should
now focus more of their business
development attention on brand
positioning and awareness.
Local
perceptions play a signifcant role,
so knowing how your frm is viewed
can prove critical. The same holds for
a foreign frm’s suite of investment
solutions. Attempting to have all
solutions for all institutional clients
in China is simply not possible. Core
capabilities need to be identifed and
then communicated to differentiate
one frm from another.
Exhibit: 12: Public Pension Fund Balance (RMB bn), 2007 – 2030e
The gap in the public pension system will need to be met by private alternatives,
coming largely from insurance offerings
Source: Z-Ben Advisors, MOHRSS
-3,000
-2,500
-2,000
-1,500
-1,000
-500
0
500
1,000
2007
2013e
2019e
2025e
“If there is anything certain in the world of analytical forecasting,
it is demographics, and the aging that China’s population will
undergo in the next 20 years is as sure of a bet as any.”
There is then the issue of what sorts
of local distribution platforms a
foreign asset manager has access to
along with any/all formed strategic
alliances. Most foreign frms have
spent a great deal of time and
resources building local relationships,
which must be fully leveraged to
maximize distribution. At the same
time, with a clearer understanding of
how these variables come into play,
a foreign asset manager must also
properly communicate an ongoing
value proposition through ongoing
client interaction.
Not to be overlooked are internal
issues such as resource availability
and management of expectations.
Over the past fve years, foreign
asset managers have had a relatively
easy time when it came to securing
business from one or more of China’s
sovereign institutions. Moving
forward, business will require far more
resources than have been invested
in the past. It’ll also take more
time before growth in institutional
mandates gathers speed, which
will then require greater internal
communication in setting and
managing expectations. To the point,
what had been easy in the past no
longer will be.
With each passing day it becomes
painfully clear that very few foreign
asset managers have a defnable
China strategy when it comes to
targeting institutional investors.
The sooner this is recognized and
eventually overcome, the better for
the future prospects of developing
real business.