Consolidation in an industry which currently comprises 52 fund managers, 20 of which are joint venture operations, could start as soon as next year with small domestic fund houses falling prey to mergers and acquisitions, according to Mandy Wang, general manager of Shanghai-based China International Fund Management Company, a joint venture between JP Morgan Asset Management and Shanghai International Trust and Investment Company.
She said: “The local fund houses do not have long-term shareholder commitments, so it reasonable to expect that some of the smaller operations will merge starting from 2006.”
Pointing out that over 70 per cent of Chinese retail deposits are held by the four big state banks – Bank of China, Industrial and Commercial Bank of China (ICBC), Bank of Communications and the Agricultural Bank of China – she noted that these institutions wield great distribution power boosted by a captive and comfortable client base.
This huge advantage was evidenced recently by single equity fund launches which raised RMB4.8bn (€508m) and RMB4.3bn respectively for Bank of Communications Schroder Fund Management and ICBC Credit Suisse Asset Management, two joint venture operations established this year.
Jack Lin, chief executive officer of Franklin Templeton Sealand Fund Management, said that these successful Initial Public Offerings by the big state banks forced his firm to postpone its plans to launch a pure equity fund this year.
“For the guys like us who were in the queue, it totally disrupted the order and the well is now dry. So we will launch our new fund in the first quarter of 2006,” added Mr Lin, whose joint venture operation with Sealand Securities has raised a comparatively meagre RMB582m since it was established just over a year ago.
Consolidation pressures are set to be compounded by the impending entry of China’s insurance companies into the fray. Two of the country’s largest insurers, China Life and Ping An are planning to expand into the domestic mutual fund market, the latter through a joint venture with Alliance Capital Management.
China International’s Mandy Wang, said that because of their large closed distribution networks, insurers would pose a great competitive threat to independent fund houses.
But she claimed that in the longer-term the competitive playing field would level once again with the success of bank and insurance company-backed asset management operations becoming dependent on achieving good fund performance and a high level of client service.
HS
