China’s Asset Management Industry in Transition – the Opportunities Ahead

Bloomberg hosted the Buy-side Forum in Shanghai in late October, convening nearly 200 leading asset managers, asset owners, chief executives and technologists from international and local buy-side institutions. Top of the agenda were the opportunities and challenges facing global investors and how data-driven technologies will shape China’s investment management industry, as it undergoes rapid growth and new reform. With the liberalization of China’s asset management sector over the last year, the industry could grow to be the world’s largest by 2030.

“In many global markets, the buyside community plays a critical role in defining investment trends and pioneering new technologies,” said Jean Saw, Head of Enterprise Sales at Bloomberg China. “The opening up of China’s asset management industry to global participation is creating exciting new opportunities for both international asset managers and local buy-side firms.”

Here are five key takeaways from the forum:

1. China is one of the top investment destinations

Temasek’s Head of China Yibing Wu pointed out that global fund managers are increasingly optimistic about the opportunities driven by China’s economic transformation. In recent years, it’s investment environment has improved, particularly in the areas of governance, ease of business and support for innovation.

“We are in the best market, at the right time and operating in comparably the most favorable investment environment,” echoed Bin Deng, Chief Investment Officer of China Pacific Insurance.

2. Investors need to understand economic cycles and manage risk

So what do investors need to consider as the world’s largest fund managers start to enter a highly competitive and complex market?

Wu emphasized that understanding China’s economic cycle and making sound judgement on how the market interacts with the global economic cycle may create unique opportunities for generating alpha.

In addition, helping investors enhance their risk consciousness and setting reasonable expectations amid different periods of the economic cycle are critical considerations for asset managers tracking China, according to Yan Pu, Vanguard’s Asia Managing Director and Jian Hu, E-Fund’s Head of Fixed Income Investment.

3. Talent is imperative to China’s asset management industry

As China’s asset management industry undergoes transformation, the war for talent will be both an opportunity and challenge, said Freddy Wong, Head of Business Strategy and Development of Fixed Income for Invesco in Asia Pacific. As more foreign asset management companies are licensed to set up private equity and mutual funds in China, the buyside sector will face a severe talent gap for experienced portfolio managers and analysts.

What do global investors look for when selecting local asset managers to partner with? Ruth Gao, Head of China at Goldman Sachs Asset Management mentioned a few key criteria when assessing talent – strategic thinking, ability to work in teams, track record and having a risk-taking mindset. Global investors at forum tend to favor companies with stable, high-performing investment teams over star fund managers.

4. Chinese bond holdings have the potential to grow

Foreign holdings of Chinese bonds have risen to over US$2 trillion as of July this year. However, foreign capital into bond funds managed by Chinese asset management companies remains limited. At the forum, investors agreed that a few key challenges exist, including mutual recognition of funds between China and other jurisdictions, eligibility of bond funds under CIBM Direct and Bond Connect, credit rating gaps and the availability of more sophisticated instruments, including bond ETFs.

5. Data and technology will drive investments

In a live poll conducted at the forum, sixty percent of participants believe that the most critical tool for sound investment decision making is an advanced investment and risk management system. Forty percent of respondents say quality data is most important.

Jia Zhu, Senior Product Director of Ping An Asset Management, highlighted the importance of data quality and data governance, and shared how the firm is leveraging external and internal data and technology resources to build a proprietary database that enables seamless workflow across investment teams.