New Entrants to China’s Mutual Fund Industry Fuel Competition
September 6, 2023 — Singapore
The entry of different types of market participants has intensified competition among mutual fund participants, but offers opportunities for the entire industry to develop
With new market entrants including securities firms, individual-owned mutual fund managers, and foreign managers, China’s mutual fund industry has entered into a phase of accelerated expansion and intense competition, particularly since 2022. All market participants will need to play to their own advantages to win greater shares of assets, according to Cerulli Associates’ newly released report, Asset Management in China 2023: Finding Certainty Amid Geopolitical Shocks.
Since April 1, 2020, when the China Securities Regulatory Commission (CSRC) lifted the foreign ownership limit in mutual fund managers, eight wholly owned foreign fund firms have been set up in the market. Backed by professional investment and research teams, as well as extensive global investment experience, foreign managers can provide innovative solutions to meet the diverse needs of investors. Foreign managers can utilize these strengths in areas that are relatively new to China, such as pension funds, index funds, sustainability-themed funds, and Qualified Domestic Institutional Investor (QDII) funds.
Favorable policies have ignited securities firms’ interest in securing mutual fund licenses. The super guidance, first announced in 2018, placed prohibitions on the channel business and put pressure on securities asset management firms’ assets under management (AUM). Therefore, most listed securities firms are looking to apply for mutual fund licenses through subsidiary channels and enter the mutual fund market to expand their business. Regulatory measures released in May 2022 opened the way for various firms, including securities companies, to apply for mutual fund licenses under the “one participation, one control, and one license” rule. Under this rule, a securities firm that already controls a fund management company can still apply for a mutual fund license through its subsidiary.
Individual-owned mutual fund managers are those created by former senior executives of mutual fund management companies. These fund managers are expanding at a faster rate than the industry—by seven times compared to double for mutual funds during this period—although their marketshare is relatively low. As of June 2023, the 27 individual-owned companies recorded assets of nearly RMB500 billion (US$70.0 billion) and a significant increase in marketshare from 0.2% to 1.7% since 2015, thus becoming a new force to be reckoned with in China’s mutual fund market.
“Regulators continue to encourage the development of the market and issue licenses, which is conducive to healthy competition in the industry and will provide investors with a more diverse range of asset management products,” said Joanne Peng, research analyst with Cerulli. “Foreign mutual fund managers, individual-owned mutual fund managers, and securities asset management companies are all important players who must compete effectively by improving their investment research and services, as well as customize products to meet the needs of the Chinese market.”
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