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Money Management

Local growth to propel Chinese managers to global stage — Casey Quirk

Chinese investors will account for roughly half of the global asset management industry's net inflows from 2017 to 2030, propelling some local managers into the ranks of global contenders, predicted a report released Monday by Casey Quirk, a practice of Deloitte Consulting.

Foreign managers will capture only 6% of that mainland market, leaving Chinese money managers as the dominant beneficiaries of an estimated $8.5 trillion in net inflows over that span, said the report from the money management industry consultant.

And with relatively high money management fees on the mainland, the share of marginal revenues going to local managers could be more than half of the global industry's totals, said Daniel Celeghin, a Hong Kong-based principal and head of wealth management strategy, Asia-Pacific, with Casey Quirk, in a telephone interview.

That, in turn, could prompt foreign managers, grappling with rising fee pressures and waning inflows overseas, to rethink "core beliefs" about running their businesses — even, ultimately, "becoming Chinese" by selling a majority stake to a local partner — in order to better compete for that fast-growing, high-margin market, said Mr. Celeghin.

The report focused on the mainland as a source of capital, rather than as a target of investment, for example, from overseas investors looking to allocate more to Chinese stocks and bonds.

The report predicted that retail and high-net-worth investors would power the growth of the mainland's asset management industry, with Casey Quirk predicting the share of those segments' wealth invested in asset management products will rise to 10% by 2030 from 4% at present.

Growing inflows and rising valuations should fuel annual growth in assets under management on the mainland of 12% to 15% from now and 2030, the report said.

While China's initial opening to foreign managers — limiting them to minority partner status in joint ventures with local players — has given way to an era of wholly foreign-owned enterprises, Mr. Celeghin predicted that domestic dominance in areas such as distribution will leave those enterprises with little prospect of becoming top players on the mainland.

Foreign managers in mature markets, where revenue and margin growth is "mostly finished," could end up being the proverbial kid locked out of the candy shop, looking at the goodies through the window, he said.

If foreign managers want to tap into "this profitable pool," they'll have to be "more creative, more open minded" than they've been in the past about how they are willing to team up with local players, said Mr. Celeghin.

For local money managers on the mainland, by contrast, the sustained, strong pace of inflows over the coming decade or more should give them a "long runway where they can build up their businesses off of the domestic market alone, predicted Mr. Celeghin.

That will give them the wherewithal to go global. "They're going to have the economies of scale from this big profitable market," whether they opt to pursue mergers and acquisitions or establish overseas operations that could take years to break even, said Mr. Celeghin.

The really interesting question, in 10 years' time, is whether mainland managers will start popping up in the global league tables, he said.

Managers that are part of large financial conglomerates, with captive clients, are less likely to scale those heights, Mr. Celeghin predicted. Firms growing now without captive businesses are the ones worth watching, he said. He declined to name them.