The first global managers licensed to offer mainland-managed strategies to qualified investors in China are playing the long game in a market set to become the asset management industry's growth engine.
Shanghai-based executives at some of the eight firms with the licenses needed to manage money for local high-net-worth and institutional investors say they're focusing on building compelling track records as they add depth and breadth to local teams handling investments, operations and client service.
A Nov. 7 report by asset management consultant Casey Quirk by Deloitte suggested the payoff awaiting those who succeed. The report predicted half of the global asset management industry's $17 trillion in net inflows between 2017 and 2030 will come from retail, high-net-worth and institutional investors on the mainland. But foreign firms, the report warned, are likely to garner a mere 6% — or roughly $500 billion — of the $8.5 trillion in Chinese inflows.
Executives with foreign firms in Shanghai said they aren't looking for a quick payoff.
Neuberger Berman's leadership is "prepared for a long build," said Patrick Liu, who joined the New York-based firm's wholly foreign-owned enterprise in Shanghai early this year as general manager and head of China.
The "real bet" represented by Neuberger's local operation in Shanghai is a long-term one on China, Mr. Liu said. Executives are positioning the firm to partake in that market's heady growth by offering institutional-quality strategies before institutional investors become the dominant players there, he said.
While the race to win the hearts, minds and allocations of Chinese high-net-worth and institutional investors will be more of a marathon than a sprint, there are shorter-term hurdles to overcome as well.
For example, firms that garner private fund manager licenses from the quasi-official Asset Management Association of China must launch their first investment strategies within six months of clearing that final hurdle to doing business with qualified investors on the mainland. And because the regulations governing WFOEs with private fund manager licenses require strategies to be managed onshore, many in that first wave of competitors have had to expedite their efforts to build investment and operational capabilities in Shanghai.
In a market crowded with domestic competitors, foreign players without "a lot of relevant experience" in China could face an uphill battle explaining to prospective clients "why you as a foreign manager" offer them better prospects, said Stewart Aldcroft, Hong Kong-based CEO of CitiTrust Ltd. and senior adviser to its Asia fund management team.
Whether managers can make the case that their investment style gives them an edge is something they are "going to have to work out," Mr. Aldcroft said. It could prove to be "quite a long process," he added.