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Money Management

Z-Ben: Foreign managers to capture 25% of a fast-growing Chinese fund market by 2027

Foreign money management firms will capture a significant share of a fast-growing Chinese mutual fund market set to become much more institutional over the coming decade, a report by Shanghai-based financial industry consulting firm Z-Ben Advisors contends.

The Z-Ben report said global managers, newly able last year to acquire majority 51% stakes in fund management companies on the mainland, should be able to win a 25% share of a mutual fund market likely to grow to $12 trillion by 2027. Global managers accounted for a negligible share of China's $1.8 trillion market at the end of 2017.

Over the past decade, the market's growth to $1.8 trillion from $450 billion was powered by demand for money market funds, lifting their share of the pie to 59% from 3%.

By contrast, the combined value of equity and balanced funds over that volatile decade declined by more than $50 billion, slashing their share of the market to 18% from 85%.

The Z-Ben report predicted the feverish growth of money market funds is set to wane, in line with regulatory efforts to foster a deeper, more diverse market better suited to helping the country's population save for retirement.

Ivan Shi, senior manager of Z-Ben's in-house research on China's investment management industry and capital markets, said regulators could unveil a local version of the U.S.'s individual retirement accounts as early as this year, and appear ready to put their full weight behind it.

That, in turn, could boost the weight of individual pension money flowing into stock and bond funds, lifting retirement-related investments to 40% of total industry assets under management by 2027 from zero at the close of the latest year, Mr. Shi said in a telephone interview.

By 2027, Z-Ben predicted active equity and balanced funds would once again command a leading market share of 35%. The share of money market funds should slip to 21%, bond funds should account for 20% of the total; passive funds, 16%; international funds, 6%; and "other" funds, 2%.

With regulators clearing the way last year for global firms to acquire a majority 51% stake in mainland fund management companies, and further liberalization expected, the Z-Ben report predicted the current industry lineup of 125 fund management companies could expand to 200 by 2027. Of that total, around 50 should be foreign and a number of those should rank among the top 30 players, Z-Ben predicted.

That opening for global managers to bring their "key intellectual property" should chip away at the dominance local managers currently enjoy, the report predicted.

Meanwhile, the report predicted that the fee pressures weighing on money manager revenues globally should remain relatively muted in China over the coming decade. The report said industry revenues should surge to $32 billion by 2027 from $4.4 billion in 2017.