Fortune SG Fund Management Co., a Shanghai-based money manager, is moving to boost its institutional business and lessen its dependence on China's volatile local retail market.
Alexandre Werno, executive vice general manager of the joint venture between Shanghai Baosteel Group Corp. and Paris-based Societe Generale Group, said in a Feb. 11 interview the shift should provide Fortune SG with a more solid foundation in a market where the retail sector — the traditional focus of the country's fund management companies — is looking increasingly “fragile.”
A growing exodus of star managers from China-based fund management companies to join private firms, where they can own equity and charge performance fees to high-net-worth and institutional investors, is contributing to that problem, he said.
Against that backdrop, Fortune SG's strategy has been “to develop an institutional business,” he said.
He pegged the firm's current mix of institutional and retail business at 40/60, up from 20/80 when he joined Fortune SG in May 2013, from his post as a director in Societe Generale's investment banking business.
Much of that institutional growth has come from the Fortune SG Listed Money Market Fund, the first such money market fund listed on the Shanghai Stock Exchange when it launched December 2012, and still the largest, with RMB20.5 billion ($3.3 billion) in assets at the end of 2014.
Fortune SG's assets under management of RMB65 billion as of early February include roughly RMB45 billion in non-money-market assets, 75% of which comes from retail investors and the rest from high-net-worth and institutional investors. Mr. Werno said his target is to achieve a 50/50 split.
Fortune SG isn't alone in its institutional ambitions. Analysts say the challenging economics of China's retail fund management business — where bank distribution costs can take up 50% or more of a fund management company's fees — are spurring China-based money management firms to put greater efforts now into developing institutional businesses.
A number of factors go into fee arrangements, for retail and institutional accounts alike, and market watchers say no reliable industry data are available.
But even if margins on a fund management company's retail and institutional businesses end up being roughly the same, the “stickiness” of institutional money would make that business relatively attractive, said Theodore Niggli, a Shanghai-based managing director with MSCI Inc., and head of that firm's Asia-Pacific index business.
Mr. Werno said in many instances institutional business offers better margins. He figures Fortune SG nets roughly 50% of the firm's typical 150-basis-point management fee, or 75 basis points, for actively managed A-shares funds. By contrast, the fee on a separately managed mandate can be 100 basis points, with a performance fee of 15% to 20%, he said.
