The landscape prior to/during COVID-19:
China has long been recognized as the biggest single opportunity for new business and growth in the asset management industry – and COVID-19 hasn’t changed that:
- Total AUM in China is expected to top US$5.6 trillion by 2025 – making it the second largest market in the world after the US
- The Chinese government remains committed to opening up and deepening its capital markets; non-Chinese asset managers stand to benefit from these changes
- China is further along the path to a post COVID-19 recovery than many other countries and we are already seeing positive signs of a return to growth, such as new, multi-billion dollar retail fund launches
What will the New Reality look like?
Beyond a world dominated by COVID-19-related restrictions on economic activity, KPMG professionals anticipate opportunities for fund managers to either expand their existing footprint or enter China for the first time.
- Recent regulatory developments indicate a positive direction of travel for doing business in the future in China. These include:
- the relaxation of foreign ownership restrictions - such as the scrapping of foreign ownership caps on retail fund management companies in April 2020.
- the expansion of offshore investment opportunities - including plans to launch a Greater Bay Area (GBA) Wealth Management Scheme, which will enhance the cross-boundary flow of investment products
- For companies with an existing presence in mainland China, evolving their current operating models into a coherent target state will be a critical objective, while those who have not yet established a presence will need to carefully consider their options for market entry
- Hong Kong (SAR) has long been seen as a gateway into the rest of China. KPMG research conducted amongst HKIFA member institutions found a positive outlook for the future of Hong Kong’s fund management industry, underpinned by the city’s experienced talent pool, product diversity, open market, robust regulatory framework and proximity to mainland China
KPMG Professionals see a reshaping of industry contours driven by several mega-trends over the medium term, i.e. within 5 years:
- Technology-led business models will be the norm, with retail investors (and intermediaries) demanding a primarily digital and mobile user experience
- It will no longer be enough for asset managers to have solid investment products; winners will instead be providers of solutions to investors’ investment-related needs. China will be no different in this regard. Creating investor-led solutions will likely necessitate partnering with intermediaries – in Hong Kong (SAR) and mainland China, these are primarily banks – to better understand end clients’ needs and create appropriate portfolios
- ESG investing in the region will become the ‘new normal’, with investors demanding that asset managers integrate ESG into their investment processes. This will be as important in China as elsewhere around the world, driven by the Chinese government’s drive to create a more sustainable economy
What do organizations need to consider?
For industry executives, the option of full ownership of retail fund management companies in mainland China offers a new, welcome but complex avenue to future growth and success. As it stands, foreign players have a number of ways to access the mainland China market, including, but not limited to, QDLP (Qualified Domestic Limited Partnership) programs, joint ventures, wholly foreign-owned enterprises and fully-owned fund management companies.
Whatever the strategy may be, it is clear a considerable amount of investment is needed for entering the market, meeting local regulations and guidelines, setting up infrastructure, building up brand recognition, hiring the right talent and adapting to the local culture. But given the potential size of the reward, all serious competitors are looking long and hard at what it might take to grab the prize in China.
Sitting in an asset management C-suite looking out to the landscape in 2025, there are a number of questions to consider when thinking about China:
- What is our appetite for investment in China? Over what period are we seeking a return on our investment? How will we judge the success of the venture as we build into China?
- Do our senior executives truly understand China and why doing business there will not look and feel the same as in any other market we operate in?
- Are we prepared to reconsider our “single, global operating model” to create a scale business onshore in China? Do we need to build partnerships along the investment value chain?
- How do I seek to balance potentially conflicting regulatory requirements between my home-base and the CSRC in China?
- How well do I understand the Chinese investor base and its buying behaviours? What does our brand “say” to these investors?
- Why would local asset management talent join our firm? Once hired, what is our strategy to retain talent in the highly mobile Chinese market?
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