Global asset managers including BlackRock and J.P. Morgan Asset Management are facing mounting pressures on profitability in China even as they gain a bigger footing in the nation's fast-growing mutual fund industry.
The hurdles are piling up: higher distribution fees, new entrants stepping into the arena, and a growing war for talent. On top of that, declines in the local stock market imposed deep losses on new funds, even as a recent rally has started to ease the pain.
Such challenges are growing more apparent just months after BlackRock became the first global asset manager to launch a fully owned onshore fund business. Fidelity International and Neuberger Berman are prepared to follow suit. The new reality complicates profit prospects as they deepen their commitment to the 32 trillion yuan ($4.8 trillion) market despite rising geopolitical risks and an economic slowdown.
"The potential for increased competition and greater difficulty in attracting talent will add to the challenges for foreign firms when executing on their strategies," which are key to building the scale needed to break even, said Harry Handley, a senior associate at Shanghai-based consultancy Z-Ben Advisors.
While BlackRock has raised billions of yuan from local investors in two funds since September, it's not pocketing all its management fees. The U.S. giant's China unit paid more than 48% to distributors in so-called "client maintenance fees" last year, the highest proportion among locally incorporated fund houses, according to data compiled by Wind Information.
Joint ventures of foreign firms including J.P. Morgan, Morgan Stanley, Credit Suisse and Prudential paid a higher proportion of fees to distributors last year than the previous year, although those of UBS and Invesco ceded a slightly lower share, the Wind data show. J.P. Morgan's venture, which the U.S. bank is seeking full control of, shared 26.7%, up from 23% in 2020, according to the data.