Funds News
- Fund assets likely to hit US$1.4 trillion by 2016
Date: 21-Mar-2007 Sources: (Shenzhen Daily)
THE Chinese mainland is likely to become the fastest-growing fund management market in the world, with assets under management reaching US$1.4 trillion by 2016, according to a study by management consultancy McKinsey & Co.
The firm estimated that the mainland's US$156 billion in assets under management would expand at a compound annual rate of 25 percent and that the market would generate up to US$3 billion in annual profits by 2016.
A shift in consumer savings from low-yielding bank accounts into investment vehicles such as mutual funds, favorable regulation and the rapid development of the mainland's capital markets will all drive growth, according to the study released last week.
China, with a population of more than 1.3 billion, has more than US$2 trillion of personal savings sitting in bank deposits.
McKinsey estimated the fund industry's assets under management account for just 8 percent of the mainland's gross domestic product, compared with 214 percent in the United States.
The market's potential was highlighted in December when Harvest Fund Management Co., China's No. 1 fund company, raised a record 41.9 billion yuan (US$5.41 billion) with a single product. Harvest is 19.5 percent-owned by Germany's top lender, Deutsche Bank AG.
The report warned, however, that fund management firms should be prepared for significant volatility in the short term because China's capital markets are still developing and most investors focus on short-term performance.
This was highlighted Feb. 27 when the benchmark Shanghai Composite Index, which rose more than 130 percent in 2006, hit a fresh record high before plunging to end the session down nearly 9 percent. The move helped trigger a global equity markets rout.
Among specific types of fund products, the study forecast mutual funds would grow at a compound annual rate of 23 percent to reach US$890 billion by 2016. Pension funds are expected to expand to US$380 billion by 2016 from US$46 billion last year.
The level of assets is a key measure in the industry because fund managers charge fees based on a percentage of the money they invest.
The report warned that many fund management companies operating on the mainland were still below levels needed to turn in a profit. China has more than 50 fund management companies, of which more than 20 are joint ventures with international fund houses or partly owned by foreign financial firms.
'More than 60 percent of asset managers on the Chinese mainland today are still below the break-even threshold, which is estimated at around US$700 million to US$800 million (of assets under management),'the report said.
'Of the 20 active foreign asset managers in China, only around one-third have assets that exceed this level.'
McKinsey said much of that money is concentrated among the largest players, with the 10 biggest fund managers holding US$63 billion of the industry's US$110 billion in assets under management at the end of last year.
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