Red tape stalls growth

PUBLISHED : Tuesday, 06 September, 2011, 12:00am
UPDATED : Tuesday, 06 September, 2011, 12:00am


The mainland is on the list of all foreign fund-management companies as a 'must-have office', but they continue to face hurdles in establishing their businesses.

Regulatory constraints and limited distribution channels are restricting their ability to grow their market share and assets under management (AUM).

As if that's not enough, increased competition from domestic companies is adding another layer of challenge for foreign managers.

These and other hurdles are listed in a survey by accounting firm PricewaterhouseCoopers (PwC). The survey, entitled PwC Foreign Fund Management Companies in China, is its third. Robert Grome, PwC asset management leader for Asia-Pacific, says that when the first survey was conducted in 2007 there was optimism about the future of the fund management industry on the mainland.

'In the eyes of some fund managers, that feeling has since evaporated somewhat. The regulatory environment remains tough. The distribution network is still dominated by the four major banks. There're now more Chinese players in the market. It doesn't come as a surprise that foreign fund houses find it challenging to make an impact in China,' Grome says.

He says the top priority of most foreign fund managers is to grow their AUM, that have remained unchanged over the past two years.

According to the PwC report, compared with the domestic companies' market share of 53 per cent with 1,321 billion yuan (HK$1.6 billion) of AUM last year, foreign players command a respectable 47 per cent with 1,176 billion yuan. The respondents expect to see a 60 per cent growth in AUM by 2014. For the first time since PwC conducted the biennial survey, the 30 foreign fund-management companies that took part this year identified human resource management as a major concern.

The survey shows that the industry has seen an exodus of CEOs and star fund managers who would prefer a position in unregulated private fund houses where they may be granted a shareholding in the company.

Skill shortages across the sector are becoming more acute with the expansion in product offerings and diversification. Despite the challenges, foreign fund management companies operating on the mainland are far from calling it quits. All the respondents remain resolute in their commitment and confidence in the Chinese market.

So much so, they're projecting higher revenue growth in the next three years. That optimism stems from the loosening of the approval process for new funds and the expected opening up of more distribution channels.