Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. MONEY MANAGEMENT
April 28, 2014 01:00 AM

China money market rush has managers excited

Firms hoping Internet investors move to more complex investments

Douglas Appell
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Chris Powers said Chinese investors have been steadily pouring more money into their Internet accounts.

    Money management firms in China this year are seeing an Internet-fueled flood of assets into money market funds from a new generation of investors, a potential game changer in a region where people continue to keep the vast bulk of their savings locked in low-yielding bank deposits.

    The potential will depend on how successful the money managers and their Internet partners can be in getting their customers to move beyond money market funds and into a broader range of asset classes.

    For now, a combination of bank deposit rates kept artificially low by China's central bank and new products allowing customers to use the Internet to shift as little as one yuan into money market funds earning 5% or more are giving that “digital” market segment the feel of a one-trick pony.

    In the first two months of 2014, inflows into money market funds accelerated to almost 700 billion renminbi ($113 billion), powering a dramatic 90% increase in their assets under management to 1.42 trillion renminbi, even as equity and bond fund assets stagnated, according to data provided by the Beijing-based Asset Management Association of China.

    As a result, money market funds claimed a 40% chunk of China's 3.6 trillion renminbi in mutual fund assets as of Feb. 28, up sharply from 25% of a smaller 3 trillion renminbi pie at the end of 2013.

    Meanwhile, that 700 billion renminbi would account for a roughly 1.6% chunk of the 43 trillion renminbi in Chinese bank deposits as of late 2013.

    Tianjin-based Tianhong Asset Management Co. Ltd.'s partnership with Beijing-based Internet payment platform giant Alipay has led China's Internet boom, gathering an estimated 500 billion renminbi by the end of March for its money market fund since mid-2013. More than 300 billion renminbi of that total has come since the start of 2014.

    A growing number of imitators have come to market this year, including the launch in January of a partnership between Beijing-based China Asset Management Co. Ltd. and Internet payment heavyweight Tenpay, which has gathered estimated inflows of more than 100 billion renminbi so far.

    Xiaoming Zhou, vice president of Tianhong Asset Management, said in a March interview that the inspiration for his firm's trail-blazing product was the fact that mutual fund clients were spending “more and more time online,” making it essential for Tianhong to follow them there. The new technology could help the firm connect with customers “we couldn't have reached before,” he added.

    On both scores, Tianhong and its imitators appear to be enjoying considerable success.

    'Whole new set of investors'

    The Internet vehicles being launched in China now are attracting “a whole new set of investors ... a super retail section, previously unaccessed by the mutual fund industry,” said Chris Powers, an associate with Z-Ben Advisors, a Shanghai-based consultant on investment management business opportunities in China.

    With the ability to shift their savings into higher-yielding money market funds with the tap of a smartphone button, one lesson the new investors appear to be learning is that they have better options at their fingertips than depositing their money in a bank.

    Mr. Powers said that at the end of 2013, the average amount being invested in Tianhong's money market fund by 43 million Alipay customers was 4,300 renminbi, a steady increase from the average investment at the start of the fund. That increase suggests Alipay customers have been graduating from simply shifting small amounts from their Internet payment accounts to moving sizable chunks from bank deposits as well, he said.

    A number of market veterans see China's Internet boom providing a boost for the country's money managers beyond money market funds, whose fees of 30 to 33 basis points aren't rich enough to serve as a launching pad for a globally competitive industry.

    In a market where the average age of mutual fund investors is 40, products that allow use of the Internet to invest as little as one yuan in money market funds are serving to “familiarize a younger generation of investors with mutual funds,” noted Allen Yan, deputy CEO of Shenzhen-based Rongtong Fund Management Co. Ltd.

    Those Internet money market partnerships have the opportunity now to offer an expanded range of investment products to compete for assets sitting in bank deposits, said Alex Wong, a Shanghai-based partner and asset management industry leader with PricewaterhouseCoopers Zhong Tian CPAs Ltd. Co.

    “I believe this distribution breakthrough will help (China's) fund management industry,” Mr. Wong said.

    Still, a number of analysts predict the push from money market success to getting young investors into higher-margin equity and fixed-income strategies will prove a long, hard slog — in part because the shift from Internet pay accounts to money market funds has been made so simple that customers are hardly aware that they're investing in mutual funds.

    “This does make them more sophisticated investors and expands their investment channels, but there's no indication that these platforms will help drive investors into bond or equity funds” anytime soon, said Z-Ben's Mr. Powers. It does “move them away from the mattress-saving model ... but there's still a long way to go,” he said.

    The new investors may eventually graduate to investing in other types of funds “but probably not in the short term,” agreed Felix Ng, a Singapore-based analyst with Cerulli Associates. The real challenge will be the next stage, when these Internet money manager partnerships decide what to do with their newly acquired client base, he said.

    Uncertain timing

    Still, if the timing is uncertain, the ripple effects from the recent growth of China's Internet distribution could extend eventually to developed markets as well, noted Daniel Celeghin, a Hong Kong-based partner and head of Asia-Pacific for Casey Quirk & Associates, LLC, a Darien, Conn.-based consultant to money managers.

    On a global basis, mutual fund distribution is ripe for disruption amid new technologies allowing money to be safely, accurately tracked in real time, said Mr. Celeghin. And a country such as China, where inertia in the face of change is lower than markets with highly developed traditional infrastructure such as the U.S. and Europe, could be an epicenter of change, he said.

    It would be unwise for industry players in developed markets to ignore what's going on now in China, Mr. Celeghin said.

    Ivan Shi, Z-Ben's Shanghai-based head of research, made a similar point with regard to China's Internet culture. “Six months ago, who in China was using online payment systems to pay for taxis? Now, everybody is doing that,” he said. By the same token, the kind of online investment platforms focused now on money market funds are developing “very, very quickly,” he said.

    China's regulators could still throw a spanner in the works if they become alarmed at the pace of change, analysts said. And in recent months, they've made noises about limiting the amount of money that Internet customers can shift from bank deposits.

    Even so, Mr. Celeghin predicts that in 10 years or less, “we're going to see a radical change in terms of how fund managers and retail investors interact.” By way of example, he said a company such as Alipay, with data on hundreds of millions of customers, could be in a position to predict, based on a customer's spending patterns, what financial products could be right for that customer, and offer a range of options for investments at a click of a button.

    Related Articles
    Growth opportunities tempered by uncertain regulatory environment
    Tianhong blazes trail with fund tied to online giant Alipay
    Chinese managers facing growing pains
    Money management in China
    BlackRock's new China license could give its ETFs a leg up
    SEC money market reform could hurt Federated, other large managers
    MSCI decides against including China A shares in EM index just yet
    Recommended for You
    GSAM's head of liquidity solutions to retire at end of year
    Asset managers affirm they'll pay for travel
    Asset managers affirm they'll pay for travel
    Matthew Beesley
    Jupiter Fund Management appoints new CEO
    ESG: Sustainability - Gaining Momentum
    Sponsored Content: ESG: Sustainability - Gaining Momentum

    Reader Poll

    July 6, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Nearing the finish line: Ideas on end-state investing for corporate DB plans
    The Meaning of "Portfolio Intelligence"
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Crossroads: Politics, Inflation, & Bonds
    Is there a mid-cap gap in your DC plan?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    July 4, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit