Recent regulatory reforms have opened the door for global managers to set up wholly owned asset management operations in China after more than a decade where being a minority joint venture partner was their only way in.
The new rules, announced June 30 by the Asset Management Association of China, in conjunction with the country's securities regulator, allow wholly foreign-owned enterprises to register “private funds” with AMAC, and manage them on behalf of domestic institutional and high-net-worth investors.
Some market participants expect a who's who of high-profile managers to take advantage of that opening — particularly at a moment when China's regulators are restricting outflows by local investors, and foreign investors remain cautious about allocating more to local stocks and bonds.
The June announcement has left a number of top global money managers looking to set up operations in China, with several moving now to hire considerable numbers of staff, said Yeh Cheng-Sen, a Shanghai-based partner with KPMG China's investment practice.
Many leading global firms have already established WFOEs, a prerequisite for applying for a private fund manager license — among them BlackRock Inc., Fidelity International, UBS Asset Management, J.P. Morgan Asset Management, BNP Paribas Investment Partners and Aberdeen Asset Management PLC.
Executives with other heavyweight managers, including Pacific Investment Management Co., Vanguard Group and Allianz Global Investors GmbH, have said they are considering that option as they mull their China strategies.
At present, however, not all WFOEs are equal. The scope of a WFOE's business activities are spelled out at the time of its establishment, and only over the past 15 months have a handful — including Aberdeen, Fidelity and J.P. Morgan — succeeded in getting investment management included in their scope. Under the June guidelines, those firms are positioned to apply for private fund management licenses. In China, private funds are strategies for institutional and high-net-worth investors, opposed to retail-focused mutual funds.
Firms which established earlier “consulting” or “advisory” WFOEs would have to seek regulatory approval to expand their remit before seeking to manage private funds.
In an interview, Mr. Yeh likened the pickup in interest to establish investment management capabilities on the mainland to a “stampede.”