- Private funds grew over 30% from end-2015, to the end of second quarter 2016
- China also deregistered nearly 10,000 private fund managers in the middle of this year
- Foreign asset managers could build up local teams, create brand awareness, and prepare for possible mandates
China lost some of its glow for investors since the collapse of A-shares in June last year, which precipitated volatility in global markets as well as in the RMB. However, in 2016, the booming asset management industry, with continued growth in every sector, cannot simply be ignored.
These are some of the key findings of Cerulli Associates' newly-released report, Asset Management in China 2016. Private funds is one area showing stunning growth, having expanded rapidly since the filing system with Asset Management Association of China (AMAC) was approved in 2014. Total AUM continued to rise, over 30% from end-2015, to reach RMB5.6 trillion (US$842.8 billion) at the end of second quarter 2016.
At the same time, the sector shows varying quality. To clean up shell companies and unqualified managers, AMAC deregistered nearly 10,000 private fund managers in the middle of this year. Nevertheless, more than 16,000 local private fund companies are still operating.
The long-awaited liberalization of the private funds industry finally received the go-ahead from the China Securities Regulatory Commission (CSRC) at the end of June this year. The Chinese authorities moved to broaden the business scope of WFOEs and joint ventures (JVs) by allowing them to establish onshore private securities funds under their own brands and directly invest into the Chinese market, including the secondary market.
"We should note that, despite the WFOE breakthrough, foreign exchange control measures remain in place, and so a WFOE's fundraising activities and investment activities have to remain within China," says Thusitha De Silva, director with Cerulli.
"For foreign asset managers that want to tap into the competitive local private fund industry, full-scale localization is necessary," says Miao Hui, senior analyst with Cerulli who leads the China research initiative. "This should include distribution and investment networks, the capacity to handle legal issues, and local talent," she adds.
Unlike many local managers, foreign asset managers typically have long-term time horizons. Pension funds and mutual funds, rather than private funds, could be their ultimate target product spaces to penetrate in China. However, to win domestic mandates, a domestic investment track record is necessary. Along with the deregulation of market entry, foreign asset managers could build up local teams, create brand awareness, and prepare for possible mandates.