德勤-机会在即：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

China's asset management market is expected to grow rapidly, becoming the second largest globally by 2025 with an estimated AUM of USD10 trillion. It is the only large market experiencing double-digit organic growth, and the recent 11 Measures introduced in 2019 have significantly opened up the market to foreign asset managers, allowing them to access all client segments through various entry routes.

Main Points

• Market Potential: China's asset management market is growing at a double-digit rate, driven by economic expansion, rising personal wealth, and increased fund penetration. Regulatory reforms, particularly around Wealth Management Products (WMPs), are shifting demand towards more transparent, NAV-based products.

• Regulatory Changes: The 11 Measures of 2019 have removed foreign ownership restrictions on Fund Management Companies (FMCs), enabled foreign managers to form majority-owned JVs with wealth management subsidiaries (WMS), and allowed full ownership of insurance and securities asset management companies. These changes create new opportunities for foreign firms to establish a presence in China.

• Market Access: Previously, foreign managers were limited to minority JVs or WFOE PFMs, which had limited reach and control. Now, with the new regulatory framework, they can access all segments of the market, including the retail segment, which was previously out of reach.

• Challenges: Despite the regulatory opening, the Chinese market remains a complex and competitive environment. Foreign managers must invest substantial resources and navigate unique investor preferences, regulatory expectations, and a strong domestic distribution network.

• Strategic Approach: To succeed in China, foreign managers must adopt a long-term perspective and focus on five key "good practices":

Key Good Practices

1. Invest in Regulatory Relationships
   Building strong relationships with Chinese regulators such as the CSRC, CBIRC, PBOC, and SAFE is crucial for navigating the evolving regulatory landscape. These relationships can expedite licensing approvals and help shape future regulations.

2. Focus on Investor Education
   Chinese investors have historically favored short-term, high-return products like WMPs. Foreign managers should invest in educating investors about risk-return profiles and long-term investment strategies, especially through digital platforms like WeChat and Ant Financial.

3. Exploit Opportunities in Digital Distribution Innovation
   Digital distribution channels are becoming increasingly important in China. Third-party platforms like Ant Financial have gained significant traction in mutual fund distribution, offering foreign managers a chance to innovate outside traditional bank-controlled models.

4. Identify a Differentiating Product or Value Proposition
   Foreign managers must develop unique offerings in areas where they have expertise, such as overseas investment, retirement funds, smart beta, and ESG investing. These can serve as competitive differentiators in a market dominated by local players.

5. Empower Local Teams
   Local teams are essential for understanding the Chinese market and executing strategies effectively. Empowering them with decision-making authority and integrating them into the firm's operations can enhance agility and talent retention.

Conclusion

The Chinese asset management market presents a vast opportunity for global asset managers, but success requires a strategic, long-term approach. By leveraging regulatory relationships, investing in investor education, embracing digital distribution, offering differentiated products, and empowering local teams, foreign managers can position themselves to thrive in this dynamic market.