China is likely to become the fastest-growing asset management market in the world, with assets under management set to top $1,400 bn within the next decade, according to a new McKinsey report.
The management consultancy estimates China’s $156bn in AUM will expand at a compound annual rate of 25 per cent. “There is huge room for growth,” said Stephan Binder, a partner in McKinsey’s Shanghai office and co-author of the study.
The report highlights three factors that will drive the rapid growth of China’s asset management market:
- A change in consumer behaviour that will shift consumer savings from low-yielding savings accounts into higher-yielding investments such as mutual funds – currently, 79 per cent of personal finance assets languish in low-yielding bank deposits
- An increasingly favourable regulatory environment
- The rapid development of China’s capital markets.
But there are no profits without perils. The report warns of significant volatility, and a challenging environment typical of emerging markets.The Chinese asset management is described as “ultra-competitive with over fifty asset managers, with very few having achieved scale,” while investor behaviour “remains very immature and unpredictable.” (This is, after all, a market that puts a 50 times valuation on squeezers of orange juice.) China also “lacks a risk management and compliance culture.”
The report is also critical of fund managers themselves, noting there is a “whole generation of fund managers lacking training and professionalism.”
Still, McKinsey expects the industry will generate up to $3bn in annual profits by 2016.
Imagine what the industry would look like if hedge funds were actually legalised.