Seizing the China opportunity
Global PE firms, asset managers jostle for space as nation pursues financial sector liberalization
As China continues to open up its financial sector, international asset management giants are stepping up their activities in the country to better compete in the lucrative and sizable market.
The China Securities Regulatory Commission (CSRC) said recently that it received an application on Nov 12 from New York-based asset management firm AllianceBernstein to set up a wholly foreign-owned mutual fund in China. It marked the fifth foreign asset management company applying for such qualification since the limit on foreign ownership in mutual funds was removed in April.
Founded in 1967, AllianceBerstein managed up to $643 billion worth of assets worldwide as of the end of August. It set up an investment management company in Shanghai in 2015 and completed the private fund management registration with the Asset Management Association of China (AMAC) in March.
John Lin, portfolio manager of China equities at AllianceBerstein, has expressed on several public occasions a positive outlook on China’s A-share market. On the one hand, more foreign capital inflows into the A-share market can be expected given the amount of worldwide funds tracking emerging market indexes. Moreover, global investors will come up with more detailed and diversified strategies when exploring opportunities in China, Lin said.
The State Council announced in July last year that restrictions on foreign ownership of mutual funds would be removed from April 1. On the first day the policy took effect, two US financial enterprises — BlackRock and Neuberger Berman — made submissions to the CSRC to set up wholly owned mutual funds in China.
As the world’s largest investment management group in terms of assets under management, Black-Rock managed total assets valued at $7.43 trillion as of end-December last year, covering asset classes including equities, fixed-income securities, cash, alternatives and real estate.
In his annual letter to shareholders released in late March, Larry Fink, chief executive officer of BlackRock, wrote that the group’s focus on longterm opportunities and structural change is reflected in the way they have been approaching growing markets, such as China.
“I continue to firmly believe China will be one of the biggest opportunities for BlackRock over the long term,” Fink wrote.
Founded in 1939, New York-based Neuberger Berman managed $106.1 billion in equities, $160.4 billion in fixed-income assets and $89.2 billion in alternatives as of Dec 31, 2019. The company set up an investment management company in Shanghai in June 2016. In March last year, it became one of the first foreign asset management companies to provide investment consulting in China.
During a plenary discussion at the Lujiazui Forum held in Shanghai in June, Andrew Komaroff, chief operating officer of Neuberger Berman, said that more than 25 percent of the company’s annual income over the past five years came from China, and added that clients from all over the world have shown greater interest in fixed-asset and equity investment in China.
Foreign asset management firms’ accelerated mapping has shown the strong appeal of the Chinese market and the effectiveness of the country’s financial opening-up, said Yang Delong, executive general manager of Shenzhen, Guangdong provincebased First Seafront Fund.
Deng Hu, chief analyst with Shenwan Hongyuan Securities Research Institute, said foreign asset management firms are adept at closely following benchmarks, and only report slight deviation from benchmark index returns. Their international vision is also helpful with cross-market investment, Deng said.
The registration of private fund management qualifications with AMAC is another gateway for foreign financial giants to further tap into the Chinese market.
Public information shows that Pimco — a global investment management firm focusing on active fixedincome management — completed its private fund management registration with AMAC on Nov 9.
Founded by bond guru Bill Gross in 1971, Pimco managed total assets valued at over $2.02 trillion by the end of September. Providing investment strategies covering fixed income, stocks, commodities, hedge funds and exchange-traded funds, Pimco has an extensive global client portfolio, which includes central banks, sovereign funds, companies, university endowments and individuals.
During a recent online investment summit, experts from Pimco suggested investors watch out for two major uncertainties — the economic recovery after the COVID-19 pandemic as well as the disparity of fiscal policies among countries in the coming years.
But against that backdrop, the recovery of major Asian economies amid the pandemic has been much faster than that of the United States and Europe, with China showing the most robust momentum, said Pimco experts.
Scotland-based investment management firm Baillie Gifford, which managed assets worth $324 billion as of the end of June, announced on Sept 23 the opening of its Shanghai office. It is the 112-year-old company’s first physical office on the Chinese mainland. In early September, the company registered as a private securities fund manager with AMAC.
“The firm is building its team in Shanghai to boost its research into more Chinese companies and to find China’s future winners,” said John MacDougall, partner and chairman of Baillie Gifford in China.
The CSRC announced in June 2016 that qualified foreign wholly owned enterprises and joint ventures can apply to be private fund managers, or PFMs, in China.
Foreign private equity firms are also optimistic about the prospects in China. Online investment information provider Simuwang calculated that there are 32 foreign PE firms registered with the top Chinese financial regulators so far, among which nine completed their registrations this year. Up to 94 PE fund products have now been registered with the regulator.
Fang Xinghai, CSRC vice-chairman, said at the annual financial industry Bund Summit held in Shanghai in late October that foreign PEs have started to take shape in China.
“The further opening-up of the Chinese capital market will help it connect to domestic and international circulation. The financial industry will also be able to better serve the real economy and the capital market in general can thus seek high-quality development,” Fang said.
The central financial regulators’ relaxed grip on the quota of qualified domestic institutional investors has also created an important impetus. The State Administration of Foreign Exchange announced in late October that an additional QDII (qualified domestic institutional investor) quota of $10 billion will be provided in the near term. Meanwhile, the qualified domestic limited partner mechanism experiment in Beijing, Shanghai and Shenzhen, Guangdong province, will be further promoted.
Against such a backdrop, Pictet Asset Management, a unit of Switzerland-based Pictet Group, announced on Nov 23 the opening of a wholly foreign-owned enterprise in Shanghai.
Upon registration with AMAC, Pictet’s Shanghai entity will be allowed to raise funds from domestic investors to invest in the firm’s offshore strategies under the country’s qualified domestic limited partners program.
Renaud de Planta, senior partner of Pictet Group, said the company’s expansion into China can be mainly attributed to the prospects of the country’s asset management industry, “which has developed into one of the world’s biggest and fastestgrowing, thanks to China’s economic strength and its rate of capital accumulation”.
Competition in the Chinese asset management industry will be intensified by the entry of foreign firms in the long run, said independent economist Song Qinghui. Amid such situation, domestic companies will improve their services and product quality to face the competition, which is conducive to the sustained development of the entire industry, Song said.