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Foreign joint venture funds brace for tough fight

By Ma Zhenhuan (China Daily)
Updated: 2009-05-01 09:09

Wholly owned domestic fund management companies are fast threatening those joint venture fund management firms in China that have significant investments by foreign asset management companies, a PricewaterhouseCoopers (PwC) survey showed.

As per rules framed by the China Securities Regulatory Commission, foreign asset management firms can hold no more than a 49 percent stake in domestic fund management companies. These joint ventures are commonly known as foreign joint venture fund management firms.

The survey, which interviewed 29 such foreign joint venture fund management firms in China, revealed that they viewed fully owned domestic fund firms as their greatest competitive threat, elevating "domestic competition" from the 16th position in 2007 to second place this year in terms of threat perception.

"Foreign joint venture fund management firms are losing their competitive edge over domestic ones these days as scaled-up domestic fund management firms are providing a more stable and long-term development path for fund managers," said Alex Wong, a partner with PwC.

"In terms of staff recruitment, fund managers chose to work for foreign joint venture fund management companies before 2007 due to better career prospects, but nowadays, such advantages are less, with domestic fund firms providing a more comprehensive product line-up and being more likely to get a new product launched and approved in China," he said.

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Even so, most foreign joint venture fund management firms in China, or about 66 percent, anticipated that they would register significant growth by 2012, the survey showed. This signifies that there has so far been no evidence to suggest that the global financial crisis has resulted in moves to scale back or withdraw funds from China.

The survey findings showed that foreign joint venture fund management firms expect a "flat-to-moderate" growth this year, and such growth to pick up over the next three years.

Overall, they expect a growth of 101 percent in the overall projected assets under management (AUM) by 2012, with the number of Chinese retail investors growing from the current 33.8 million to almost 69 million.

Fund managers at these joint venture asset management firms also think they should improve existing product performance, and develop new products and distribution channels over the next three years to increase profitability, the survey said.

Although these fund managers acknowledged the poor performance of qualified domestic institutional investors (QDII) products, they predicted that QDIIs would present a significant opportunity in the long term.

"Conceptually, the QDII product is sound and will be very successful in providing profitable international market exposure to mainland investors," said Robert Grome, another senior partner with PwC.

Industry-wide data for the fourth quarter last year showed that foreign joint venture fund management firms accounted for 45.4 percent of the overall market share in terms of assets they managed in China, with an AUM of 882 billion yuan. They had 224 funds under management at the end of 2008.