China’s fund man­agers chal­lenged as banks wade into in­dus­try

Gulf Times Business - - BUSINESS -

China’s new rules for the wealth man­age­ment units spun off from its gi­gan­tic banks could help them grab mar­ket share in the $15tn fund in­dus­try.

Reg­u­la­tions that took ef­fect this week removed min­i­mum in­vest­ment lev­els and per­mit­ted the en­ti­ties to in­vest di­rectly in stocks, putting them in a po­si­tion to claw busi­ness away from other as­set man­agers. Pre­vi­ously the funds could only be di­rectly in­vested in fixed-in­come prod­ucts, lim­it­ing the scope for re­turns.

The de­ci­sion may have a two-fold im­pact: China’s big banks are con­trolled by the gov­ern­ment, so keep­ing in­flows within this cir­cle tight­ens au- thor­i­ties’ grip on the fi­nan­cial sec­tor. How­ever, con­cen­tra­tion of money at state firms could also force a re­think from pri­vate play­ers such as Black­Rock Inc, which is said to be seek­ing a mu­tual-funds li­cence in China.

“The new rules will in­ten­sify both com­pe­ti­tion and co­op­er­a­tion be­tween banks and mu­tual fund firms,” said Wang Yifeng, Bei­jing-based re­searcher at China Min­sheng Bank­ing Corp Mu­tual funds have the ben­e­fit of ex­pe­ri­ence but banks have wider client bases and stronger ser­vice net­works, he said.

About 20 Chi­nese banks, in­clud­ing the four big­gest state-owned lenders, have an­nounced plans to spin off their wealth man­age­ment units, with total reg­is­tered cap­i­tal of about 120bn yuan ($18bn).

Pol­icy mak­ers drafted plans to over- haul China’s as­set man­age­ment in­dus­try in Novem­ber, 2017, af­ter the sec­tor bal­looned.

The mar­ket for wealth man­age­ment prod­ucts had tripled to more than $4tn in a lit­tle over three years and, like mort­gage-backed se­cu­ri­ties in the US, WMPs had be­come key build­ing blocks of a shadow-bank­ing sys­tem that ex­isted largely off

The high cap­i­tal-level re­quired of­fers ex­ist­ing mu­tual funds time to en­trench them­selves in the mar­ket, said Zeng Gang, a re­searcher at the Chi­nese Academy of So­cial Sciences.

Yang De­long, chief econ­o­mist and in­vest­ment man­ager at First Seafront Fund, said bank sub­sidiaries may opt to in­vest through ex­ist­ing money man­agers, so in­cum­bents would still have a role to play.

Some of China’s top mu­tual funds are part­ner­ships be­tween lo­cal banks and global af­fil­i­ates.

These in­clude ICBC Credit Su­isse (a joint ven­ture be­tween China’s big­gest bank and Credit Su­isse Group AG), CCB Prin­ci­pal, and Bank of China In­vest­ment, which in­cludes Black­Rock as the for­eign in­vestor.

China’s mu­tual fund mar­ket has jumped 30-fold since 2004, when Black­Rock’s lo­cal joint ven­ture was set up. A Hong Kong-based rep­re­sen­ta­tive for Black­Rock de­clined to com­ment on the com­pany’s plans in China’s mu­tual funds in­dus­try.

“While banks’ wealth man­age­ment units will bring more funds into the mar­ket, they will ag­gra­vate com­pe­ti­tion in the en­tire as­set man­age­ment in­dus­try,” said Yang. “Those who can de­liver good per­for­mance and longterm re­turns will stand out.”

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