The long-awaited launch by China's regulators of a framework for individual retirement accounts could finally be drawing near, leaving foreign asset management firms scrambling to compete for what some expect will become a multitrillion-dollar market over the coming decade.
"A lot of managers have started internal preparations" to pursue that private pension opportunity, said Ivan Shi, head of research with Shanghai-based financial industry consulting firm Z-Ben Advisors, in a recent interview. A lot of global managers, meanwhile, are likewise "very, very interested" in competing for that business, he said.
Manulife Asset Management is one of them. Calvin Chiu, Hong Kong-based head of pensions development with Manulife Asia, in a recent interview, said: "We've been actively preparing for all the possible products and solutions that may qualify under (China's) pillar three," even as key details — such as the scale and scope of tax incentives — have yet to be announced.
Regulators, most recently the China Securities Regulatory Commission in November, are focusing their attention on fund-of-funds strategies — including target-date and target-risk offerings — as the foundation of that third pillar of China's pension safety net. Private pensions would complement the national and provincial public pension funds that make up China's first pillar and the second pillar enterprise annuities that corporations offer to their employees.
A January report on China's pension system by KPMG China estimated the country's third-pillar market, "still in its infancy," could grow to 11.4 trillion renminbi ($1.78 trillion ) through 2025.
The report predicted local insurers will be the first providers favored under a pilot program to be launched in three or four cities, followed by fund management companies. The report's authors, Howhow Zhang and James Harte, both directors with KPMG China's global strategy group, couldn't be reached for further comment.
Foreign firms in fund management company joint ventures with local firms will have a leg up in pursuing private pension opportunities when regulators announce final guidelines, potentially as early as this quarter, some analysts predict.
Manulife's Mr. Chiu said his firm is leveraging both its 51%-49% Shanghai-based joint venture with Sinochem Finance Co., Manulife-Sinochem Life Insurance Co., and its 49%-51% joint venture with Tianjin TEDA Investment Holding Co., Manulife TEDA Fund Management Co., "to prepare for all eventual outcomes."
Regulations had limited foreign partners to stakes of less than 50% in joint venture fund management companies but China's government is putting in place revisions now that would allow foreign firms to acquire a majority 51%, and remove ownership limits altogether in three years.
For now, foreign managers who avoided minority partner status in joint ventures serving local retail investors in favor of setting up wholly foreign owned enterprises offering "private funds" to "qualified investors" will be on the outside looking in.
Firms taking that approach to China's market include some of the U.S. market's biggest managers of individual retirement accounts, including Boston-based Fidelity Investments and Malvern, Pa.-based Vanguard Group Inc. China-focused executives for both managers couldn't be reached for comment.
Wholly foreign-owned enterprises and private funds "are out of luck for now," said an executive with one Shanghai-based WFOE, who declined to be named. "We want to move very quickly" in offering private pension strategies when the market opens, as there are likely to be first-mover advantages, he said. But to do so anytime soon will require seeking out an arrangement with a licensed product provider, he added.