德勤-中国投资管理行业机会：改革为外国公司创造万亿美元市场（英文）20页_1mb

Summary of "China's Investment Management Opportunity"

Core Content

This document from Deloitte outlines the growing opportunity for foreign investment management firms in China, driven by regulatory reforms and the development of a more mature capital market. It highlights the potential for significant AUM (Assets Under Management) growth in the Chinese investment management sector, particularly in the context of retirement savings reforms and the expansion of investment culture.

Main Points

1. Market Opportunity

• The Chinese government is set to eliminate foreign ownership restrictions in the fund management sector by 2020, opening up a vast market for foreign investment managers.
• By 2023, China's total addressable retail financial wealth is projected to reach US$30.2 trillion, with US$3.4 trillion in retail AUM in publicly registered funds.
• The retirement savings market is a key driver of this growth, as the government seeks to address a looming pension deficit.

2. Retirement Savings Dilemma

• The government-managed Basic Pension System for Enterprise Employees is projected to be depleted by 2035 due to an unfavorable worker-to-retiree ratio.
• A three-pillar pension system is being introduced, where:
  • Pillar 1 is the government pension.
  • Pillar 2 is enterprise-driven defined contribution savings platforms.
  • Pillar 3 is individual retirement accounts (IRAs).
• This shift aims to distribute retirement savings responsibility across government, employers, and individuals, with the second and third pillars expected to grow significantly.

3. Capital Market Maturity

• The Chinese government is working to mature capital markets by:
  • Allowing foreign firms to own majority stakes in investment managers.
  • Piloting a streamlined IPO registration system to increase market transparency.
  • Restricting guaranteed return products to encourage market-based investment.
• These changes aim to reduce reliance on rumor-driven investing and promote more data-driven decision-making.

4. Market Growth Projections

• A quantitative model predicts varying AUM growth rates based on GDP growth assumptions:
  • Base case (5% GDP growth): Public fund AUM is expected to grow from US$1.9 trillion in 2019 to US$3.4 trillion by 2023.
  • Bull case (6% GDP growth): Public fund AUM could reach US$3.9 trillion by 2023.
  • Bear case (4% GDP growth): Public fund AUM would grow to US$2.7 trillion by 2023.
  • Extreme bear case (0% GDP growth): Public fund AUM would decline to US$1.7 trillion.
• The mass affluent and HNWI (High Net Worth Individuals) segments are expected to see the highest AUM growth in public funds.
• The private fund market is more fragmented, with over 24,000 private fund managers competing for US$1.3 trillion in AUM. This could be a ripe market for consolidation.

5. Strategies for Success

• Foreign firms should adopt segment-specific strategies, as the Chinese market is highly diverse.
• Alternative data capabilities are crucial, given the inefficiency and lack of transparency in Chinese markets.
• Online wealth platforms can be a key channel for reaching mass retail and cream of mass retail investors.
• Defined contribution platforms (Pillar 2) offer a pathway to build relationships with large segments of the population, potentially serving as a "farm system" for future affluent investors.

6. Investor Behavior and Preferences

• Chinese investors are generally more risk-tolerant, but they may need guidance in aligning risk and return expectations with professional investment strategies.
• There is a growing cultural shift toward individual wealth-building, which could accelerate the adoption of IRAs and similar retirement products.

Key Information

• Foreign ownership restrictions: Set to be eliminated by 2020.
• Three-pillar pension system: Intended to diversify retirement savings responsibility.
• Market inefficiency: A major challenge for investment managers, requiring alternative data and robust analysis.
• Segment-specific strategies: Necessary to navigate the complexity of the Chinese market.
• Online platforms: Vital for reaching mass retail investors, with existing platforms offering scale and reach.
• Defined contribution platforms: Could serve as a bridge to the broader retirement savings market.

Conclusion

The Chinese investment management market presents a multitrillion-dollar opportunity for foreign firms, driven by regulatory reforms, a growing retirement savings culture, and a maturing capital market. Success will depend on understanding the nuances of the market, developing segment-specific strategies, leveraging alternative data, and partnering with established platforms to efficiently serve the large retail investor base.