With shrinking institutional business affecting asset managers in China the investment business of 1.58 million Chinese high-net-worth individuals (HNWIs) is a growing battlefield, according to a new report published today.
With asset management firms aiming to boost their retail sales, among the products targeted at this segment, private funds could have the most promising growth prospects, according to research from Cerulli Associates.
A report by China Merchants Bank and Bain & Company estimates the number of HNWIs in the country, with investable assets of more than RMB10m ($1.4m), owned by a massive 1.58 million individuals in 2016. And Cerulli’s survey of managers in China earlier this year shows that many now prefer to target HNWIs over mass retail investors to raise assets over the next three years.
Among the main types of asset management products sold to HNWIs in China, which include trust plans, securities firms’ plans, and certain banks’ wealth management products, private funds — especially private securities funds (PSFs), Cerulli’s report states.
Although trust assets expanded nearly 30% year on year in 2017, it is “a feast-or-famine industry”, the report states with some players enjoying more than 20% profit growth, and others seeing profits decline by more than 30%. As for securities firms, assets under management (AUM) started shrinking in mid-2017, and are expected to continue falling, due to regulatory curbs on institutions’ channel business.
The report highlights that individuals — mostly HNWIs — are the largest category of PSF investors, contributing 37.3% of PSF assets as of end-2016. “PSF managers prefer to target HNWIs when raising funds for their first batch of products, since institutions normally require managers to have track records of at least one year,” the report states.
“Foreign managers are allowed to operate in this space through wholly foreign-owned enterprises and joint ventures. Currently, 14 foreign managers are registered with the Asset Management Association of China as PSF managers, and 14 onshore PSFs have been launched.”
With more than 23,000 players, competition in the private fund space is intense with domestic managers having an advantage in terms of client base, knowledge, and investment track records.
Besides having product expertise, managers will need to work with various distributors to gain access to more investors, the report adds. Although Cerulli’s survey shows that local banks are the most preferred channel for managers, foreign players may also wish to work with securities firms and independent financial advisors, since they are “more flexible and have more clients experienced in high-risk investments”.
“While retail investors in general could provide more stable assets than institutions, HNWIs could become sophisticated after accumulating substantial investment experience – hence, managers need to convey their investment philosophies effectively to them to win deals, rather than simply provide expected returns,” the report conlcuded
To view the full report visit: The Cerulli Edge—Asian Monthly Product Trends Edition, September 2018 issue.