China Could Become Best Opportunity for Asset Managers, Says Report

Public fund AuM in the Chinese market could increase to $1 trillion by 2015, and $2 trillion in 2020, up from $319 billion as of December 2011, a Citi sponsored report conducted by Z Ben Advisors says. Greater China will

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Public fund AuM in the Chinese market could increase to $1 trillion by 2015, and $2 trillion in 2020, up from $319 billion as of December 2011, a Citi-sponsored report conducted by Z-Ben Advisors says.

Greater China will become its own asset class, separate from BRICS or emerging markets, the report says, as the disparity between Chinas 11% share of global market capitalization and investors 0.1% allocation in the country could mean a tenfold increase of global investments.

With additional compelling growth in private funds and institutional channels, China has the potential to become the worlds best opportunity for asset managers, according to the report.

This potential springs from four long-term demand drivers, Z-Ben Advisors says, which include the need to fund the retirement system for a rapidly aging population, the convergence of growth in personal wealth and managed assets, a diversification by institutional investors from sovereign bonds into managed equity and alternative portfolios, and a regime working towards liberalization.

“Economic development has led to a large and growing middle class in China, however there has been a disconnect between Chinese savers becoming wealthier, but not investing their money,” says Peter Alexander, managing director of Z-Ben Advisors, Shanghai. Regulators are keen to jump on this and to provide a stable environment that will underpin the countrys objectives for more big-picture economic growth.

While AuM will almost triple, the report says, investors are still lacking basic services and knowledge about global markets. Domestic banks do not offer post-sale servicing, and with fund managers only providing limited servicing, investor loyalty is minimal.

The report predicts that foreign banks will become fund distributors in the near future, although breaking into the retail market and facilitating partnerships with fund managers will require significant investment in relationship development with high-net-worth individuals.

Offshore subsidiaries of Chinese financial firms have been largely underestimated, however, as no foreign company will be able to equal their access to the domestic market in the next ten years, and will likely be in control of large portions of it, the report says.

It also predicts, on the assumption of a near-permanent Chinese interest in real estate, private equity and absolute returns and a motivation for diversification, that regulators will move quickly to create channels for this money to reach qualified managers.

“This is an exciting time for the asset management industry in China and the future is decidedly bright. China remains a highly complex market, and while continued liberalization offers hope, it does not necessarily bring simplicity, says Stewart Aldcroft, senior adviser to Citi Transaction Services, Asia-Pacific, on asset management industry issues. An on-the-ground presence and a clear strategy to structure a market entry effort can maximize the chance of success.

(OS)

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