Foreign money managers have begun positioning themselves to benefit as China's push to move trillions of dollars of opaque wealth management products from bank balance sheets to newly established asset management subsidiaries gathers momentum.
But potential gains could come at the cost of heightened complexity as foreign managers — many with minority stakes in fund management companies offering mutual funds to retail investors as well as wholly owned private fund management firms serving high-net-worth and institutional investors — consider establishing a third, separate asset management operation on the mainland to pursue that new opportunity.
Beijing's regulatory campaign, launched over the past year or so with the ultimate goal of improving the country's allocation of capital, effectively made late 2018 through 2019 "year zero for Chinese capital market reform," said Cliff Sheng, a Hong Kong-based partner with management consulting firm McKinsey & Co. And that's setting the stage for accelerated growth of China's asset management market in coming years, he said.
The move addresses apparent concerns of the regulator, China Banking and Insur- ance Regulatory Commission, with regard to the duration mismatch inherent in banks' wealth management products, while introducing more robust investment management practices, said Thomas Cheong, Hong Kong-based president of Principal Financial Group's business in Asia.
Assets in play come to more than 22 trillion yuan ($3.1 trillion), far bigger than the $2 trillion mutual fund market that has been the prime focus of foreign managers on the mainland, said Miao Hui, a Singapore-based senior analyst with Cerulli Associates Inc.
The first foreign manager tie-ups with local banks for the new segment were announced in December, in response to the Chinese government's invitation to foreign firms — as part of market-opening measures announced in July — to partner with the subsidiaries local banks set up at the behest of regulators over the past year or so.