In China, Bigger Managers Dominate, But Being Local Will Win Out

Cerulli’s latest report shows where foreign investors currently stand and what is needed to increase market share.

Illustration by II

Illustration by II

Following the easing of regulations in China earlier this year, asset managers appear to be showing increased confidence when it comes to investments in the country.

A new report by Cerulli Associates, titled Asset Management in China 2022: Effective Strategies for Differentiation, found that foreign private funds, in particular, have been growing at a rapid pace. “While the industry’s development will benefit from the relaxed restrictions, Cerulli believes competition will become increasingly fierce as more market participants enter the fold,” said Pan Yanjun, an analyst with the firm.

The Boston-based manager predicts that the top fund managers will command most of the market due to their reputation and long-standing track records. Rich in resources, asset allocations, strategies, and wealth management capabilities, established securities firms with asset management subsidiaries will make it difficult for small and mid-sized peers to compete. Cerulli acknowledged, however, that increased competition will improve the overall quality of the asset management industry.

The report found that foreign managers with at least 1 billion renminbi ($149.2 million) in assets under management accounted for a mere 27 percent of the entire foreign firm universe, with the remaining players holding just up to RMB500 million.

In terms of product launches, Bridgewater Associates, Winton Capital, UBS Asset Management, Value Partners, and Cephei Capital made the top five; Bridgewater led with 37 funds, followed by Winton Capital with 21 funds and UBS with 20.

“Competitive rates, strong support from industry policies, and rich overseas investment experience are important advantages for foreign PFMs [private fund managers] to develop in the Chinese market,” the report noted.

The fast-growing number of ultra-rich individuals in China is also driving demand for private wealth management, according to the report, which noted that the assets of private securities investment funds rose from RMB100 billion to RMB6 trillion between 2015 and 2021.

To be sure, challenges remain, namely the lack of local teams on the ground who are keenly aware of the country’s nuanced business and cultural practices. Successful managers in emerging markets, including China, have been committed to the local scene for years, conducting as many as 1,500 meetings a year directly with company owners.

“For foreign financial institutions, international parentage is an advantage,” the report stated. “How to organically combine the localization and internationalization of their talent management is particularly important.”