Talk about branding.
A year ago, Tianhong Asset Management Co. Ltd.'s name carried no particular associations. Today, in China and other money management outposts throughout the world, it's synonymous with Internet distribution.
By many estimates, the once modestly sized Tianjin-based money manager finds itself at the top of the assets under management rankings of fund management companies in China, with more than 400 billion renminbi (US$64.5 billion) on the strength of a money market fund tie-up with China's Alipay online payments giant.
The tie-up allows customers to park idle renminbi in their accounts in Tianhong's fund, where the assets garner returns of more than 5%, while remaining available to be tapped if needed to make payments.
In a country where the top banks are effectively taskmasters and toll takers for fund management companies seeking mutual fund clients, it's unclear just yet whether this alternative distribution channel could alter a balance of power that has left the banks in China holding almost all of the trump cards.
A report in September by Cerulli Associates noted that online platforms in China are expected to be only “slightly cheaper than banks.” In a March 22 e-mail, Felix Ng, a senior analyst with Cerulli based in Singapore, said that remains Cerulli's assessment.
In a March interview, Xiaoming Zhou, vice president of Tianhong Asset Management, declined to go into detail but suggested the economics of his firm's Internet-related business with Alipay were superior, noting the tie-up “by far reduces our overall cost.”
Tianhong pays only technology support fees, which are much lower than what would have to be paid for bank distribution, Mr. Zhou said. However, he couldn't immediately say how the company's operating margins would compare for business done through banks and business done through the Internet.
Some industry executives speculate Alipay, which is effectively handing clients to Tianhong on an Internet platter, could be taking as much as 80% or 90% of the money manager's fund-related revenue.
Mr. Zhou said his firm's profits for 2013, as the money management fund's asset gathering run was in the early stages of explosive growth, should be no reflection of the profits it can earn from its current level of AUM.
The elegance of the Tianhong-Alipay Internet money market fund structure has left a number of industry veterans impressed.
Tianhong's success is a “showcase of innovation, of serving up the right product to the right target audience,” said Kevin Wong, Shanghai-based China securities country manager for Citi Securities Services.
It shows that you can “hit the jackpot” with something as simple as a money market fund.
Mr. Wong added, however, that it remains to be seen if more complex fixed-income and equity funds can find similar success using Internet distribution, as such strategies would likely face greater regulatory scrutiny in areas such as “know your customer” standards.
Tianhong's Mr. Zhou said the nature of a money market fund lent itself to the company's success — providing clients whom the fund management company might not have been able to reach before “a complete solution” in terms of absolute returns, liquidity and convenience.
