China’s Top Asset Managers Ride the Equity Roller Coaster

The sudden death last month of Xiang Tingfeng, the 46-year-old CIO of Bank of Communications Schroder Fund Management Co., reportedly of a heart attack, shocked China’s asset management community and sparked a lot of media speculation about possible karoshi, a Japanese term also used in China meaning “death by overwork.”

Clearly, these are stressful times for that country’s asset managers. These firms have been riding the most volatile market on the planet. After hovering just above the 2,000 level for the better part of two years, the Shanghai Stock Exchange Composite Index surged by 153 percent in the 11 months to mid-June, then plunged 43 percent over the next two and a half months before stabilizing. The index closed at 3,368.74 on October 22.

The bull market “heightened investor enthusiasm for equity investment products,” says Li Yimei, deputy general manager of China Asset Management Co. The firm returns in second place in the 2015 China 20, Institutional Investor’s annual ranking of the country’s leading asset managers, with $93.2 billion in assets under management as of March 31. ChinaAMC “took advantage of favorable market conditions by issuing new products” during the equity boom, Li adds, including the MSCI China A-share Exchange-traded Fund in February, the Shanghai Stock Exchange 50 ETF in March and the Shanghai Leading Stocks fund in May.

Bank of Communications Schroder enters the ranking in tenth place after its assets more than quadrupled in the 12 months ended March 31, to $31.2 billion. The firm launched new equity funds in the autumn of 2014; company executives say assets also include for the first time an asset management subsidiary that invests in nonstandard equity and debt products.

This summer’s abrupt market correction reflected waning confidence in China’s slowing economy. A move by the People’s Bank of China to adjust its daily fixing method, which effectively devalued the yuan by 2 percent against the dollar in August, intensified the rout.

Managers reacted to the turmoil by scaling back or removing equity-based funds from their lists of investor options and focusing on balanced funds, which combine equities with fixed-income products and cash, says Liu Shichen, an analyst at Shanghai-based consulting firm Z-Ben Advisors.

ChinaAMC “changed market strategies to promote low-risk products such as money market funds and bond funds,” says Li, “and promote regular fixed investment, while increasing investor services and training.”

But even money market funds have had to temper client expectations. Yu’e Bao, the behemoth money market fund of Tianhong Asset Management Co. that is sold online through the firm’s partnership with e-commerce giant Alibaba Group, was offering an interest rate of just 3 percent on October 15, down from 4.85 percent at the end of 2014.

Tianhong provides a good gauge of the market volatility. The firm tops the China 20, with assets of $119.3 billion on March 31, but Yu’e Bao, by far its largest fund, saw assets fall by nearly $15.5 billion, or 13 percent, in the quarter ended June 30, when the equity market peaked. The firm hasn’t reported third-quarter figures yet, so it’s not clear if Yu’e Bao benefited from the rush back to money market funds.

Asset managers need not hang their heads, notwithstanding the market turbulence. The industry’s 100 firms were managing a combined $1.046 trillion as of August 1, according to the Asset Management Association of China, up from $904 billion a year earlier and $602 billion in August 2013. Combined assets for the China 20 firms rose 44 percent in the latest year, to nearly $798 billion. Moreover, based on AMAC and II data, the top 20 controlled about 75 percent of the industry’s assets on March 31, up from 61 percent the previous year. Meanwhile, some asset managers who should be among the most stressed-out are insisting China’s stock market downturn is temporary. One such optimist is Ni Ming, a portfolio manager at Yinhua Fund Management Co. Although his firm slides to 16th place in the China 20 from 11th last year and is the only firm in the ranking to have seen its AUM shrink in the 12 months ended March 31, Ni recently told Chinese news portal Sina Finance that he saw “no contradiction between valuations and fundamentals” in the stock market. “The government’s strong hand is still a key factor,” he said. “We are optimistic.”