7
China: The World’s Best Opportunity for Asset Managers?
| Asset Management Overview
This setup means that China’s asset
management industry has not
managed to keep pace with broader
economic growth: Fund managers
would like nothing more than to
see an 8% rise in infows (China’s
average GDP growth over the last
several years) from new or existing
investors. The disconnect between
Chinese savers becoming wealthier,
but not putting their money to work,
means that every year long-term
AUM growth projections are revised
upward. As a result, there is keen
interest from outside the industry
both from foreign fnancial frms
interested in establishing a foothold,
and from large domestic corporations
that simply want to hold a stake as
passive investors. Some potential
entrants have been deterred by an
erosion in proftability across the fund
management industry, with several of
the smallest frms now consistently in
the red.
However, the future of asset
management in China is bright, and
the shift toward a fnancial industry
more reminiscent of developed
markets has already started.
Bearing this in mind, public fund (i.e.,
mutual fund) AUM is projected to
reach RMB6.8tr (USD1tr)* by 2015.
Considerable policy support is still
required, but regulators, despite
having different priorities, are keen
to provide a stable environment for
investors and to support more big-
picture economic growth. The need
for growth policies is compounded
by less-than-ideal demographic
trends, which will lead to considerable
pressure on the pension system.
The
United Nations estimates that as
much as one third of the Chinese
population will be aged 65 or older
by 2050.
Lastly, emerging cross-
border programs will translate into
opportunities for international frms,
but not necessarily along the avenues
that most observers now expect.
Chinese Mutual Funds
The frst mutual fund companies
debuted in the late 1990s but did not
realize signifcant amounts of infows
until 2004. Chinese investors were
gradually moving into equities, and
while outside observers likened this
era to a Macanese casino, overall
participation in the fnancial industry
was relatively limited.
The run-up in equity prices in 2006
led to an explosion of interest in all
segments. There was near universal
interest in all things fnancial that
permeated major cities. Of course,
such zeal proved to be as sure a
sign of a bubble as any, and the
subsequent implosion of prices in
2007 left a mark on the fnancial
industry that has yet to be removed.
The global fnancial crisis in 2008 did
little to boost confdence, even though
many felt that China was, and still is,
relatively immune from the underlying
causes of the crisis.
All of this has led to a situation where
the amount of wealth that is actually
being put to work is well below what
it would be, if the fnancial services
industry had a more thorough
Exhibit 1: Sizing by Market Segment (May 2012),
China Asset Management Sectors
Trusts have an extremely large amount of AUM but have traditionally not been
highly active in expanding outside of their core business into asset management
Sources: Z-Ben Advisors, Wind, China Trust Association
Trusts
Mutual Funds
Private Funds
Brokerage AM
68%
28%
2%
2%
Exhibit 2: Number of Funds vs. Total AUM, 2006 – 2011
Fund industry AUM peaked in early 2007, after following the equity
market upward. Since then, AUM has declined, even as the number of
funds nearly tripled
Sources: Z-Ben Advisors, Wind
AUM (RMB bn)
Total Number of Funds
2006
2007
2008
2009
2010
2011
0
100
200
300
400
500
600
700
800
900
1,000
0
500
1,000
1,500
2,000
2,500
3,000
3,500
*USD fgures are based on exchange rates as of June, 2012. All estimates in this report are based on expected growth in assets in RMB fgures. USD fgures
are provided as a reference only, and not intended to imply any change in exchange rates.