China’s Asset Managers See More Interest from Foreign Investors

As foreign institutions’ interest in Chinese assets continues to grow, market intelligence and institutional databases are seeing more searches by non-APAC firms looking to get a better grasp of mainland China-based asset managers. 

John Molesphini, head of global insights at eVestment, a subsidiary of Nasdaq, says global institutional investors are looking for returns at acceptable levels of risk regardless of where asset managers are based. This is, in part, what’s driving the growing interest in Chinese asset management firms. 

As a result, potential foreign investors are having to search for information on these often-opaque firms using a variety of methods, including getting information from database providers such as eVestment, Morningstar, and Eurekahedge. Molesphini says that his company is seeing a significant increase in mainland China searches.

“Among all non-APAC investor and consultant users searching for APAC-based asset managers, the percentage of those looking for asset managers specifically based in China has risen from about 10% at the end of Q2 2018 to about 20% at the end of Q2 2019,” he says.

Morningstar, too, is seeing similar growth patterns on its platform, Wing Chan, director of the manager research practice for EMEA and Asia, tells WatersTechnology. “It’s difficult to quantify in numbers the searches for Chinese asset managers, but certainly anecdotally, given our presence globally, including both onshore and offshore China, there’s a marked increase in enquiries for onshore Chinese strategies across equities and fixed income,” he says. 

Chan adds that there is more interest in Chinese assets coming from institutions from Europe and the US: “They’re more open-minded about investing in Asia, and particularly China.”

Morningstar’s database, Morningstar Direct, is an investment analysis platform that allows institutional and wealth management investors to search for fund information and other quantitative data. It also features research on portfolio managers and asset management firms for its clients. 

Information is Essential

As interest in the country grows, it’s also important that China-based asset managers ensure that their information on these market intelligence sites is accurate and up to date, which is something they may not have been accustomed to in the past. Investors and consultants often use market intelligence vendors to create a universe of similar firms. So, for example, an outside investor may look at a company’s holdings, investment vehicles, retail-versus-institutional investor ratios, ESG considerations, as well as office locations, firm ownership and key professionals.

If this information isn’t up to date—or, worse, if it’s blank—some asset management firms may be ruled out due to the lack of data in their profiles, Molesphini says. 

“If any of that data is missing, either your firm won’t come up in the search at all, or you may be eliminated because you left out key data that your competitors included and they got the RFP, and you didn’t. That’s why it’s so important to provide as much data as possible,” he explains. “In cases [where information is missing], asset management firms are being assessed by investors and consultants and either selected for follow up or eliminated from consideration, and the asset managers don’t even know it.”

Morningstar’s Chan says that basic top-level information is relatively easy to acquire, but it gets tougher when database providers try to dig deeper. For example, it could be data on the fund’s investment processes, its investment team, or how it remunerates managers. 

“Once you start asking more detailed questions, that’s where sometimes there is still some apprehension. There’s an education process involved. We can sometimes see that they want to maintain their trade secrets, but it’s to their benefit. If they want to connect with the international institutional investors… these types of [data points are] needed to win those mandates and clients,” Chan adds.

Opening Up

Over the past few years, the Chinese market has become more open and accessible to foreign institutional investors. The equities and bond markets, for instance, have established trading links with Hong Kong. 

In addition, the People’s Bank of China has approved S&P Global Ratings’ Beijing-based operations to start rating onshore bonds. It is anticipated that this move will make the bond market more transparent and, as a result, help foreign investors feel more comfortable about investing in the country.

Historically, China has been under-represented in global indices such as the MSCI World or FTSE All-World, so these benchmarks are playing a little bit of catch-up, Chan says.

“Fundamentally, China is a big market, and probably too big a market to ignore. For example, China A-shares is the second-largest equity market in the world behind the US, and it’s the third biggest market for fixed income,” he adds. 

Previously, the Chinese equity market was dominated by retail investors, meaning it was driven more by momentum traders rather than being focused on fundamentals. But now, Chan explains, there is more activity from fundamental and long-term investors. 

“It’s not just the local asset community, but also international firms like Fidelity, JP Morgan, and BlackRock. They have the WOFE [wholly foreign-owned enterprise] license, they are hiring investment teams, and they are looking at stocks at the fundamental level,” he says. 

On the fixed-income side, investors are searching for yields from a stable and significant market. China happens to offer just that at the rates level and in the onshore credit market. And it comes at a time when its market is opening up. “All of these factors play to the growing interest we’ve seen,” Chan adds.