China's fund management companies are struggling to retain investment talent just as a growing cadre of offshore asset owners could be mulling first-time allocations to the country's capital markets.
Fund management companies saw “tremendous turnover” in the past year, especially in the second half as China's domestic A-shares market surged, said Charles Salvador, director, investment solutions with Z-Ben Advisors, a Shanghai-based consultancy on business opportunities in China's financial industry.
More than 150 senior investment professionals left fund management companies in 2014, noted Ying Tan, a Hong Kong-based principal with Mercer who researches asset management firms in the Greater China region. And while those professionals moved for a variety of reasons, many are likely to join private boutiques or set up their own, encouraged by the recent “bull run” by A shares, she said.
In China, “fund management companies” is a specific term, referring to the roughly 100 firms set up under the 1998 law establishing the country's mutual fund industry.
The relatively gradual increase in recent years in the ranks of those fund management companies, licensed by the China Securities Regulatory Commission, stands in contrast to the rapid growth of private “hedge fund” firms — which, despite that term, are mostly long-only managers operating with fewer restrictions on the scope of their investments, and with room to employ hedge fund-like fee structures off limits to mutual fund firms.
Analysts say there were 1,200 private firms focused on A-shares strategies at the end of 2014 — even if only a few handfuls could boast assets under management of more than US$1 billion.
Rachel Wang, a senior analyst based in Shenzhen with Morningstar Investment Management Asia, said recent examples of veteran portfolio managers leaving their fund management companies to join private firms or launch their own firms include:
Chen Yangfan, manager of the renminbi 1.4 billion (US$227 million) AEGON-Industrial Organic Growth Balanced Fund, with a 3-star Morningstar rating, who left Shanghai-based AEGON-Industrial Fund Management Co. last month to set up a private firm;
Deng Xiaofeng, manager of the RMB13.4 billion, 5-star-rated Bosera Theme Industry Stock Fund left Shenzhen-based Bosera Asset Management Co. in December to join GaoYi Capital, the private firm launched by Qiu Guolu earlier that year. Mr. Qiu, in turn, left his post as chief investment officer of Shenzhen-based China Southern Fund Management Co. in March, to start his firm.
Fan Dizhao, manager of the RMB3.99 billion Guotai Jinniu Innovation Growth Equities Fund, which boasts a Morningstar 5-star rating, left Shanghai-based Guotai Asset Management Co. in October to start his own firm; and
Wang Ruyuan, manager of the 5-star rated, RMB7.4 billion Baoying Core Advance Balance Fund and the 4-star rated, RMB4.9 billion Baoying Strategic Growth Stock Fund, left Shenzhen-based Baoying Fund Management Co. in October to set up her own private firm: Hongliu Investment Management.