2024 China
rankings
Land of the blind
First, I need to address the stark reality: sentiment in the China investment space remains dismal. This is no better illustrated than by the Greater China funds complex which has been hit by both declining securities prices and substantial outflows. To further stress the point, China is deemed so “uninvestable” that there is genuine career risk from just broaching the subject with institutional clients.
This challenging backdrop has certainly influenced the outcomes in this year’s China Rankings. However, we must also consider the relative progress by those global managers which have remained committed to the China market. On this point, I first need to return to 2018 when our outlook for competitive success was quite optimistic. The domestic market was on the precipice of wholly foreign owned participation and local competition comprised mostly large, staid managers. Innovation was extremely limited, and inefficiencies were widespread and ripe to be exploited. We expected global groups to enter, capitalize on their competencies, scale quickly and command market share of a combined 25% by 2028. Even as I write that last sentence I wince. We weren’t overly optimistic. Instead, we were naïve – just not for the reason you might think.
Our naiveté stemmed from failing to account for commercial conceit. This isn’t meant as disrespect but as an observation. Having assessed every single global manager operating a wholly owned business unit locally in China, there is a common pattern: these business units are run in the exact same fashion as any other international operation. The belief that strategies effective in Tokyo, Taipei or Seoul would succeed in Shanghai couldn’t be farther from the truth. This is now showing up in the results – be that for groups running a fund management business or a bank wealth management “joint venture”.
The policies being adopted are policies of inertia that simply don’t fit in a growth market such as China. There is a tendency to lean towards “this is how we do things” which has manifested as an unwillingness to adapt to local market practices. This is not an oversight of the importance of risk management and compliance, or the value of global frameworks. We understand that these are vitally important. But so too is an acknowledgement of the unique aspects of the onshore market. Something has got to give. Without greater flexibility and adaptability, long-term success will be all-but impossible. A starting point: for those with a local business unit, micromanagement is not the answer.
I would like to add one final comment. This is now my fourth “China is collapsing” cycle. While I’m not here to downplay the structural risks facing China, these are the very same risks that have persisted for decades. What differs this time around is media focus and a wider dissemination of overwhelmingly negative storylines. It’s become a vicious feedback loop and has intensified the bleak sentiment. My message stays the same: filter out the noise.
Peter Alexander – Managing Director, Z-Ben Advisors
Four quarters of net inflows drove onshore mutual fund AUM to RMB26.8tr by the end of 2023. Almost RMB2tr of net new money in 2023 was partially offset by capital depreciation. Even so, the industry still achieved a YoY growth rate of over 6%.
Private fund AUM ended virtually flat as first half gains were offset by redemptions and forced selling from as strained equity performance weighed on small-cap focused private fund
Northbound MRF investment flows improved greatly compared to prolonged net selling last year. Weak domestic market returns alongside demand for H-share and offshore fixed income exposure saw over USD840m in net inflows into this leg of the program.
Aggregate Greater China AUM fell by roughly a third as China sentiment worsened in 2023, though a few managers were able to hold AUM steady. More experimentation with active ETF manufacturing was evident in the year.
Credit Suisse itself placed within the top 25 a year ago. It is little surprise then that the combined business of two top-tier managers produced an incredibly strong mainland score, overtaking long-running mainland #1 Invesco. This score reflects UBS’ multiple onshore fund platforms, including a holding in the large and profitable ICBC Credit Suisse venture.
JP Morgan once again placed first in the outbound arena. Its dominance in the MRF program alongside a scaled QDII subadvisory business form the core of this business line; 2023 saw the manager begin to target Southbound Wealth Management Connect.
The manager extends inbound leadership into a second year. While JP Morgan experienced moderate Greater China AUM contraction, its high-fee product line insulated its score, faring better than large index-focused competitors.