China could have 70 fund management companies by mid-2012, according to analysis by Z-Ben Advisors.
The most recent approval is Chang’an Fund Management, which is the 67th fund management company to receive authorisation. "Chang’an is now the fifth FMC to get the official nod so far this year. That compares to just three fund management companies approved in the entire year of 2010," says Z-Ben Advisors, which suggests the China Securities Regulatory Commission (CSRC) is adopting a more liberal approach to approving fund management companies. "All things considered, we interpret these facts to suggest that CSRC has now adopted a more liberal approach in approving fund management companies, so long as the applicant meets standardized qualification criteria," says Z-Ben.
CSRC has also shortened the application process for new product designs in order to allow qualified products to go to market more quickly. "We believe CSRC is increasingly comfortable with its new-found role of monitoring and enforcing regulation rather than actively guiding industry dynamics – a regulatory stance likely to be highlighted in the yet-to-be-published Revised Fund Investment Law," says Z-Ben.
However, analysis also reveals that China's fund management industry is becoming increasingly competitive, making it difficult for new entrants to gain business traction "Recent fundraising results for new fund management companies have been less than satisfactory, to say the least. And, with operating costs rising rapidly, the breakeven AUM is now close to RMB10bn and takes roughly twice as long to achieve compared to 2008," says Z-Ben.
With industry competition escalating costs, a registered capital upwards of RMB300m would be a much more realistic investment level for a greenfield fund management company to even hope for revenue streams to catch up with rapidly rising operational costs, says Z-Ben. While a license represents a great option value, the ability to capture the next market rally will require a strong performance track record, a robust product portfolio as well as a strong brand positioning. "While China represents enormous opportunity for investment managers, both foreign and domestic, a long-term investment horizon is almost a necessity going forward," warns Z-Ben.
Z-Ben Advisors is a Shanghai-based boutique consulting firm providing research and analysis on the Chinese asset management industry.
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