China is an attractive proposition for global asset management firms. The market is set to have the world’s second-largest asset management industry by 2023, with continuing liberalizations offering the promise of more direct access for overseas firms in the coming years.
This possibility makes setting up shop in China and earning the attention of Chinese investors a matter of great urgency for global firms. The challenge is that this market – largely inaccessible to overseas players until very recently – is complex, unique and fast-changing.
A new FleishmanHillard report, “The Future of Asset Management in China,” explores this through the lens of investor expectations. Drawing on insights from 250 Chinese investment professionals, the report suggests that well-orchestrated strategic communications and reputation management are now as necessary to success in China’s financial services sector as the right licenses, resources and infrastructure. Three findings, in particular, may change the way foreign firms approach this market:
1. Credibility counts for more than performance
While investment returns are a priority for 64% of Chinese investors, brand credibility is cited by 74% as critical to asset manager selection. Furthermore, this far outweighed considerations about the nationality of origin of the investment services provider. Only 33% of investors said it was very important to them to choose an asset manager from China, nearly matching the percentage who said the same for a foreign asset manager (32%).
A further positive indicator for foreign fund managers is that 91% of respondents said they already invest in private fund products from wholly foreign-owned enterprises (WFOEs), despite these products having higher fees than local alternatives and being relatively new to the market. What’s more, 69% admitted that their trust in global brands was a factor in their decision to purchase an investment product from a WFOE or foreign-local joint venture instead of a local asset manager. These investors also saw foreign brands as offering better performance (72%) and unique strategies (68%).
This all suggests that foreign fund managers are facing a more level playing field in China than they may expect and that investors will choose a credible brand over one offering better returns. This highlights the importance of reputation equity for firms operating in mainland China.
2. Sustainable investing is coming to the fore
In line with global expectations, Chinese investors identified the most important traits in a fund manager as transparency in communications (60%), sophisticated risk management (60%) and transparent fee disclosure (58%). More surprisingly, environmental, social and governance (ESG) expertise was next on the list. It displaced commitment to investor education and local expansion, with 52% considering strong ESG product offerings very important and a total of 94% citing this as very or somewhat important.
As China’s leadership positions the nation as a global environmental champion for the future, this enthusiasm for ESG investing gives sophisticated international firms the opportunity to lead the conversation in this space based on their global expertise.
3. Multiple channels of communication matter
China’s professional investors and investment professionals favor a variety of information channels, with similar numbers preferring independent financial advisors (74%), financial media (68%), social media (67%) and websites (66%). This confirms that digital strategies need to be a core component of any communications effort in China, while also underscoring the enduring importance of person-to-person relationships and the support of trusted financial advisors.
This variety presents a challenge for foreign firms, which will need to master multiple and often unfamiliar channels to reach their intended audiences in mainland China.
With the announcement that China is removing foreign ownership limits on securities, futures and fund management firms in early 2020 – and the possibility that investment management WFOEs could obtain licenses to directly target the retail market – financial institutions with ambitions in China would be wise to do the work now to boost their brand recognition and reputation.
To learn more, please download FleishmanHillard’s “The Future of Asset Management in China” report here.