Why China’s savers could be the big winners as Beijing opens to global funds
China’s fund management industry will be reshaped by alternative investment strategies and risk management capabilities as global fund houses gain entry as wholly-owned enterprises for the first time in the nation’s modern history, according to fund experts.
A trio of global fund houses comprising Principal Global Investors, BlackRock and Investec say the private fund management (PFM) licence represents a major opening of China’s onshore market, which will bring positive benefits to the nation’s savers.
Among them, investors will have additional choices on how to invest, including more higher yielding products, according to fund experts speaking on the sidelines of JPMorgan Global China Summit last week.
Mark Wiseman, global head of active equities for BlackRock, said he considers the ability for foreign managers to access China under the PFM licence as the single largest business opportunity for BlackRock.
“With one of the highest saving rates in the world, a rising middle class, an ageing population and yet a country in the early stage of developing its social safety net such as pension and healthcare, there is a massive need for professional and reliable saving products in China,” he said. “Global asset managers and institutional investors alike can help bring more discipline to this market, which is still dominated by retail investors.”
In December 2017, BlackRock joined foreign fund houses Invesco, Schroders, Neuberger Berman, Fidelity, and Hong Kong-based Value Partners in attaining the status of a private securities investment manager under the PFM licence. In the past, foreign managers were restricted to taking a minority stake in a joint venture with a Chinese partner. However, the PFM licence allows foreign fund managers to launch private funds for up to 200 qualified investors.
The PFM licence also means Chinese investors can tap into more financial products, including those involving credit investing and alternative strategies, Wiseman said.
Jim McCaughan, chief executive of Principal Global Investors, said his company, which has a minority stake in a mainland joint venture, has been helping Chinese investors and insurers channel funds into international securities.
He said the company is seeking to build up its mainland joint venture in line with leading market standards.
“As Chinese investors become wealthier, they are more likely to diversify their investment internationally. Through our joint venture we are bringing global best practices and risk management into the Chinese market,” he said.
In April China announced it would resume its QDII programme, issuing a new batch of quota worth US$8.3 billion. The scheme was suspended in early 2015 amid concerns of capital flight.
Another outbound investment programme called the qualified domestic limited partners, which allows foreign managers to raise capital from Chinese investors for offshore hedge funds, was also revived this year, reversing a decision to halt the programme in 2016 due to capital outflow and yuan depreciation concerns.
Still, Hendrik du Toit, chief executive of Investec Asset Management, said China is one of the few emerging markets that has managed to systematically develop its capital market in a sensible way.
“The Chinese authorities have shown a deep understanding in opening up their capital market. The step-by-step approach and caution is justified, given the high stakes involved,” he said.
Jing Ulrich, JPMorgan vice-chairman of Asia Pacific, said uncertainties in the global financial market have slowed down the pace of China’s ongoing efforts in internationalising the yuan as the leadership’s priority now is on financial de-risking and de-leveraging.
“Given the US$20 trillion savings pool in China earning low returns in the banking system, Chinese retail investors are fast becoming an important source of capital for portfolio investments globally,” she said.