Manager sees retirement industry as ripe for growth
China Asset Management Co. Ltd. is looking to the role retirement savings played in buoying the U.S. fund market as a guide to how the Beijing-based fund management company should be positioning itself now.
When ChinaAMC was founded in 1998, the company's leadership team "studied the ... development paths of fund industries around the world," said Li Yimei, the Beijing-based firm's CEO.
The example of markets like the U.S., which grew with the tailwinds from pension developments, "gave us the confidence to build our company around pension investments," she said.
ChinaAMC has one of the largest books of retirement-related assets under management of any domestic fund management company, at 189 billion yuan ($27.9 billion) as of Dec. 31, or roughly 20% of the firm's total assets of 989 billion yuan.
Ms. Li said ChinaAMC's retirement total included 95 billion yuan managed on behalf of second-pillar supplementary corporate retirement plans, or enterprise annuities, giving it the top share among fund management companies in that 1.4 trillion yuan market for a 10th consecutive year.
The remainder of ChinaAMC's retirement assets come from the country's first-pillar basic public pension funds, China's National Social Security Fund and the "target-date pension fund-of-funds" strategies launched just last year as a private third pillar of the country's retire- ment safety net.
Ms. Li said ChinaAMC also managed 434 billion yuan in retail equity, bond and money market mutual funds as of Dec. 31, or more than twice the size of its retirement business.
Like many domestic fund management companies, money market funds account for more than half of ChinaAMC's fund assets but the company has a strong 95 billion yuan equity business and a 37 billion yuan aggressive allocation fund business as well, noted Claire Liang, a Shanghai-based manager research analyst with Morningstar Inc.
The rest of the firm's AUM — at more than 350 billion yuan — manages of non-retirement-related separate accounts for institutional and high-net-worth investors.
If ChinaAMC has been preparing to focus on pension management all along, the market may just be catching up with the firm's ambitions. The gradual growth of China's retirement savings pool over the past decade or more could be set to kick into a higher gear, noted Ms. Li. She cited recent reforms adding mandatory "occupational annuities" for public employees to the country's second pillar, and expectations that a limited 2018 test run for China's third-pillar private pensions scheme could be set to go nationwide.
KPMG's latest annual white paper on China's pension market, released Feb. 18, estimated that the country's retirement savings pool grew by 20% in 2018 to more than 13 trillion yuan.
That scale, while substantial, is "only the beginning," said Ms. Li. KPMG's white paper, meanwhile, predicts the country's retirement savings will reach 45 trillion yuan by 2025.
China's growing retirement savings market will likely be "one of the biggest opportunities for fund companies in the next decade," said Ms. Li.
For the coming year, "the most exciting developments … will be the selection of investment managers for public servants' occupational annuities across 30 provinces, and the startup of individual pension accounts," with mutual funds added to the list of approved vehicles, she said.
Having participated in the study of the occupational annuity system "from the very beginning," ChinaAMC is well prepared to compete for mandates, said the CEO. Analysts say occupational annuity mandates could total between 700 billion yuan and a trillion yuan over the coming year or two.
ChinaAMC has won occupational annuities mandates from the Central Government Retirement Administration — which oversees occupational annuities for employees at public institutions and central government bodies in Beijing — and two provinces, said Ms. Li. She declined to provide further details.
The firm is likewise well positioned to compete for the country's newly sanctioned target-date pension fund-of-funds business — having built up its asset allocation capabilities while forging strategic tie-ups with global heavyweights such as Russell Investments and Fidelity Investments.
The firm's ChinaAMC 2040 target-date fund of funds was the first to come to market last year, and three more funds — for 2035, 2045 and 2050 — have already been approved, more than any competitor, said Ms. Li.
Target-date funds will be the foundation on which China's private pension pillar for individuals is built, she predicted.
But to serve that market properly, fund management companies will need to rethink every aspect of the services they provide "from a 20- to 30-year perspective," she said.
For Chinese fund management companies — the only firms licensed to serve local retail investors — that could require a radical makeover, following two decades where local investors have been the principal clients of choice.
The changes ChinaAMC is looking to make to foster that environment include:
Moving from a "star manager" culture to a more team-based approach, focused on consistency in investment management over a long horizon.
Shifting from a "product-centric" approach to one focused on client outcomes.
Emphasizing global asset allocation, rather than bottom-up stock picking.
Rewarding institutional sales team for cultivating long-term relationships rather than one-off sales.
Ms. Li said ChinaAMC is dedicating considerable resources on investor education, to help clients avoid the frequent redemptions which undermine the advantages of a long-term approach to investing.
The firm is committing "significant resources ... to promote the importance of pension investments," using key digital platforms in the country such as WeChat, Ant Fortune and the popular "Zhihu" question and answer platform, Ms. Li said.