Celebrating 20 Years of Asset Management in China
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Celebrating 20 years of asset management in China KPMG International kpmg.com 2 Celebrating 20 years of asset management in China © 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Introduction China’s asset management The 20th anniversary of the industry’s are not only growing in size, but industry came into being creation provides an opportunity also looking for more professional management for their assets. in 1998. The establishment to assess the immense progress that has taken place over the last Although individual consumers and of commercial two decades. The growth in assets institutional investors are very different institutions tasked with under management (AUM) captures in terms of their needs, they both the scale of transformation — from professionally managing prompt the asset management industry six Fund Management Companies third-party assets was to innovate in product design, channel (FMCs) managing RMB10.4 billion a major landmark in development and operational capabilities. (USD$1.27 billion) in 1998 to the development of RMB12.6 trillion (USD$2.0 trillion) held The evolving structure of the financial the country’s financial by 132 firms today. Long-term growth system is another factor that will help system. It marks a will continue into the next decade, with nurture further growth among asset transition away from a KPMG China forecasting total AUM to hit managers. Besides an accommodative RMB36.3 trillion (US$5.6 trillion) by 2025, regulatory framework, China’s markets seemingly unregulated which would make it the second-largest are becoming increasingly linked environment toward a asset management market in the world. with the outside world, creating system where specialist opportunities for FMCs to provide an In addition to profound quantitative international platform for their clients. companies started to growth, there has also been significant operate according to a qualitative change. The definition of In this report, we provide an overview defined set of standards the industry has broadened to include of the asset management industry in and regulations. a wider range of participations such the world’s second largest economy. We as private fund managers, securities highlight the themes that will dominate firms and the asset management arms the industry’s next stage of growth, of banks and insurers. The range of focusing on the competitive landscape, products evolved too — the first FMCs the importance of technology, as well as were limited to closed-end funds, the ever-important issue of regulation. but nowadays there is a vast range of We hope that this publication will products in the market including ETFs, help asset managers understand the balanced funds, and QDII funds. importance of China as a market, how it All of this growth has been fuelled by should fit into their development plans, a number of factors that will continue and how their current operational model to exert a positive influence over might need to be adapted to reach the the coming years. Economic growth right opportunities. All of these are creates personal wealth among long-term considerations that require the population, who have become substantial planning. The rewards that increasingly sophisticated consumers come from getting it right, however, will of financial products. At the same also be durable, as it will allow asset time, institutional investors — including managers to write two more decades of sovereign wealth funds, insurers, fruitful history in this thriving industry. pension funds and endowments — Celebrating 20 years of asset management in China 3 © 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. China’s asset management industry — 20 years at a glance A timeline highlighting the major events over the last 20 years. 1998 The first ten fund management companies were established 2001 The first open-ended mutual fund was issued 2002 The National Council for Social Security Fund (NCSSF) awarded mandates to external managers for the first time QFII (Qualified Foreign Institutional Investors) allowed to invest in China's stock market 2003 First batch of Sino-foreign joint venture fund managers 2004 The Securities Investment Fund Law was enacted, first ETF introduced in China 2005 First batch of banking FMCs enter into the market 2007 QDII (Qualified Domestic Institutional Investor) allowed to invest in the overseas market 2008 First Chinese managers' offshore subsidiary established 2012 Asset Management Association of China (AMAC) was established 2013 Yuebao, China’s first online money market fund was launched 2017 The CSRC announce guidance on pension target funds, paving the way for the issuance of the first pension target fund in the near future 4 Celebrating 20 years of asset management in China © 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. At a glance 1998 2008 2018Q1 Number of FMCs 6 60 132 Number of products 11 515 6,943 Total AUM of the industry in billions (RMB) 10.4 2,032.0 12,619.2 Total AUM of the industry in billions (USD) 1.27 297.3 2,011.0 Source: Wind and KPMG Analysis, KPMG China 2018 Celebrating 20 years of asset management in China 5 © 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Competitive landscape — diversity is coming China’s asset management industry start establishing local businesses. is dominated by a relatively small It will be difficult for a Chinese number of FMCs, with 10 firms FMC that has primarily invested Foreign FMCs are controlling 51.0 percent market domestically to compete with the nothing new — joint share.1 These companies are the international expertise of a global firm. primary beneficiaries of the industry’s Yet, competition will not only come ventures already hold explosive growth in recent years, but from the financial sector, as China’s their dominant status will be shaken more than half of home-grown technology giants have in the next phase of expansion, set their sights on asset management the country’s mutual as new forms of competition as an area to expand into. These fund assets, but a enter the market — offering new companies are also enjoying strong products and services to clients with continued loosening distribution channels and have large increasingly sophisticated demands. of regulations amounts of capital at their disposal with The largest FMCs will face competition innovative business cultures that reward means more foreign from within the financial sector, creativity. Additionally, technology companies will start as banks and insurers both look to companies have a good understanding leverage their solid brand and extensive of how the asset management industry establishing local distribution channels to cater to a large works — with years of industry businesses.” client base. These companies enjoy experience providing mid and back extensive support from their parent office solutions to fund managers. company, which will likely be willing So if we look ahead to the next to subsidize a loss-making venture decade, we can foresee an asset in its early stages, as the value chain management industry that is very advantages of the business take hold. different from how it is today. Banks, Local incumbents will also face greater insurers, and technology companies pressure from international asset will all be competing alongside managers who are drawn to China traditional FMCs for assets to manage. due to its attractive growth prospects. Increased diversity is clearly a good Foreign FMCs are nothing new — joint development as it will stimulate ventures already hold more than half of innovation, but it will also mean that the country’s mutual fund assets, but everyone will be required to work a continued loosening of regulations harder to capture a meaningful share means more foreign companies will of the growing pool of assets. 1 Source: Wind and KPMG Analysis, KPMG China 2018 6 Celebrating 20 years of asset management in China © 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Celebrating 20 years of asset management in China 7 © 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Client base — The challenging retail market Over the last 20 years, retail investors require professional assistance to have played an important, albeit execute — such as global allocation, Setting up a direct changing, role in China’s asset and multi-asset strategies. management industry. They were the Although the retail segment is growing retail business is dominant segment of the market up in significance, asset managers should until 2007, when volatility in stocks therefore costly for be aware of the challenges associated prompted individual investors to seek with establishing a business that many Chinese FMCs. less risky assets. The retail market targets individual investors. Building a only started to pick up again in 2013, But the growing brand can take an extremely long time, when Tianhong FMC, backed by and a company will likely make a loss wealth of the Chinese Alibaba launched Yuebao — a FinTech as it develops its sales channels and platform that has quickly grown into the population will become creates a loyal consumer base. Only world’s largest money market fund. too large to ignore.“ when the FMC has reached a certain The success of Yuebao is a clear scale will it be able to make a profit.