德勤-外资投资管理机构如何赢取中国市场（英文）-2021.1-24页_1mb

Summary of "Opportunity Knocks: How Global Asset Managers Can Win in China"

Core Content

The document outlines the growing opportunity for global asset managers to enter and succeed in China's asset management market, which is projected to become the second-largest globally by 2025, reaching USD10 trillion. It emphasizes that China is the only at-scale market with double-digit organic growth, and recent regulatory changes have significantly improved access for foreign firms.

Main Points

1. Market Growth and Potential

• China's asset management market is experiencing robust organic growth, driven by strong economic performance, rising personal wealth, and increasing fund penetration.
• The market is expected to reach USD10 trillion by 2025.
• Regulatory changes have shifted the market towards NAV-based products, creating a more level playing field for foreign managers.

2. Regulatory Changes Open New Doors

• In 2019, the Chinese government introduced 11 Measures that significantly liberalized the market.
• Foreign managers can now:
  • Fully own Fund Management Companies (FMCs)
  • Establish majority-owned JVs with Wealth Management Subsidiaries (WMS)
  • Set up wholly-owned Insurance Asset Management Companies
  • Take 100% ownership of Securities Asset Management Companies
• These changes enable foreign firms to access all client segments, including the previously untapped retail market.

3. Challenges and Considerations

• China is a long-term play, requiring substantial resource investment.
• The regulatory environment remains complex, with unspoken rules and evolving policies.
• Not all foreign firms will be granted licenses, and the government may pace approvals to maintain stability.

Key Strategies for Success

1. Invest in Regulatory Relationships

• Building strong relationships with regulatory bodies such as CBIRC, CSRC, PBOC, and SAFE is crucial.
• These relationships help in navigating the regulatory landscape and expediting licensing approvals.
• Leading foreign firms are also involved in shaping new regulations, particularly in areas like pension reform.

2. Focus on Investor Education

• Chinese investors historically preferred short-term, high-return products like WMPs.
• There is a growing shift towards long-term, value-based investing.
• Foreign managers are investing in educating retail investors on topics such as retirement, ESG, and risk-return dynamics.
• Leveraging digital channels like WeChat and Ant Financial is essential for reaching a broad audience.

3. Exploit Opportunities in Digital Distribution Innovation

• Digital distribution channels are becoming increasingly important, especially third-party platforms like Ant Financial.
• These platforms have reached 25% market share in mutual funds and are expected to grow further.
• Foreign managers can bypass traditional bank networks and engage in wealth advisory partnerships.
• Utilizing data and technology to redefine client relationships is a key advantage.

4. Identify a Differentiating Product or Value Proposition

• A differentiated product set is necessary to stand out in a competitive market.
• Leading foreign managers are leveraging their expertise in overseas investment, retirement funds, smart beta, and ESG investing.
• These areas provide a competitive edge over local firms.

5. Empower Local Teams

• Strong, on-the-ground teams are essential for navigating the dynamic Chinese market.
• Empowered local teams help in attracting and retaining talent, and responding quickly to market changes.
• This is particularly important for maintaining agility and competitiveness.

Data Highlights

• Exhibit 1: China is the only at-scale market with double-digit organic growth, accounting for 40% of new assets globally over the next 5 years.
• Exhibit 2: Foreign managers have captured 53% of FMC AUM through JVs, but often lack operational control.
• Exhibit 3: WFOE PFMs have a small share of the PFM market (0.3%).
• Exhibit 4: Foreign managers have started to capitalize on the opening policies, with actions including applying for licenses and forming JVs.
• Exhibit 5: The 11 Measures have created new routes for foreign access, including full ownership and JVs.
• Exhibit 6: Average returns of WMPs have declined due to increased regulations and caps on non-standard debt.

Conclusion

China's asset management market presents a significant opportunity for global asset managers, but success requires a long-term commitment, strategic approach, and adaptation to the local environment. By focusing on regulatory relationships, investor education, digital distribution, product differentiation, and local team empowerment, foreign firms can navigate the complexities and gain a competitive advantage.