Summary of Key Points
Foreign public funds have been in China for four years, and their development can be divided into two categories: one consists of established institutions that have transitioned from joint ventures to wholly-owned operations (such as Morgan and Manulife), which have leveraged their previous joint venture experience to build a strong local presence and achieve considerable scale; the other includes newly established “pure foreign” funds (such as BlackRock and Fidelity) that, together, have a scale of less than 60 billion yuan (which is smaller than that of a single mid-sized domestic firm) and are still relying on continuous capital injections from their shareholders to remain operational, as they have not yet turned a profit. The real challenge is not a lack of channels but the need to abandon the arrogance of their “global experience” and truly localize their operations to survive in the Chinese market.
The Two Paths for Foreign Public Funds: Transitioning from Joint Ventures to Wholly-Owned Operations vs. Newly Established Funds
It’s like some people work locally to accumulate resources before starting a business, while others simply open a new store in an unfamiliar city:
- Established Players Transitioning to Wholly-Owned Operations: Firms like Morgan and Manulife may have had conflicts with local partners regarding business philosophy (for example, differences in opinions between Chinese and foreign shareholders), but they had already established local channels and teams by the time they separated, effectively bringing their own “experience and tools” to the new environment. Their scale has since grown significantly; for instance, Morgan Asset’s money market funds are approaching 90 billion yuan, indicating they have successfully left the “newbie stage.”
- Newly Established Funds: Companies like BlackRock and Fidelity, which entered the market after 2020, are starting from scratch. Together, they have a scale of less than 60 billion yuan, and even Schroeder has sold its public fund business to RoboAM. Some say these foreign funds are struggling to adapt, but domestically, newly established funds are also facing difficulties, as regulatory restrictions on the issuance of money market funds (which are crucial for scale growth) mean that everyone is on an almost equal starting point—only that the foreign newcomers have an even harder time getting off the ground.
The Need for Continuous Capital Injection: The Hardship of Not Yet Making a Profit
Public fund management is not a business where you can simply throw money at it and win:
- Leading domestic fund companies have registered capital of just over 100 million yuan, and many have never needed to increase their capital since they have been profitable through management fees. However, the foreign newcomers are constantly injecting more capital—Fidelity, for example, has increased its registered capital to 218 million US dollars (ranking it among the top firms in the industry). This is not a sign of extravagance but rather an indication that they have not yet reached the break-even point. It’s similar to running a bubble tea shop that constantly requires funding for inventory and rent; they haven’t yet recouped their initial investment.
- The profit threshold for foreign firms is much higher than for domestic ones: Domestic newcomers can start making a profit with a non-money market fund scale of 80-100 billion yuan, while a certain foreign firm estimates that it would need 14 billion US dollars (about 94 billion yuan) to be profitable. This creates a vicious cycle: no scale → no revenue → unable to attract and retain a good team → poor performance → even less scale.
The Real Challenge is Not a Lack of Channels, but the Lack of a “Localized Competitive Edge”
Some claim that foreign firms lack channels (such as banks not promoting their products), but this is just an excuse:
- The real competitive edge in the public fund industry comes from “talent and brand.” The top 10 fund companies in terms of non-money market fund scale do not belong to banking or internet sectors; they have succeeded thanks to excellent fund managers and a long-standing reputation. Many domestic firms have also thrived without substantial shareholder support.
- Foreign “global brands” are not as effective in China: For example, Schroeder was founded in 1804, but Chinese investors don’t care about its century-old history; they are more interested in whether the firm can help them make money, not how impressive its history is. If foreign firms always think they are in a superior position, it’s like trying to teach the Sherpas to climb Mount Everest by someone who has already conquered the Kilimanjaro.
The Key to Survival: Abandoning Arrogance and Transforming Global Experience into Chinese-Specific Solutions
The rules of the “newbie stage” do not allow unlimited attempts at revival. If foreign firms want to stay in the Chinese market, they need to change their mindset:
- Don’t treat their global experience as a set of fixed rules to follow; for example, investment strategies that work abroad may not be suitable in China (considering the large number of retail investors and high market volatility). Local teams should make decisions independently, rather than being controlled from afar by headquarters.
- Focus on “surviving” first before trying to “shake up the market.” Initially, people hoped that foreign firms would act as a “鲶fish” to stimulate competition, but currently, they are still struggling in the “newbie stage.” They should first lower their stance, develop products that meet the needs of Chinese investors (e.g., more low-risk products for retail investors), and gradually build up scale and reputation.
In Conclusion
For foreign public funds to succeed in China, it’s not about relying on shareholder capital or their global brand. Instead, they need to focus on building products, attracting talent, and earning a good reputation just like domestic firms. After all, in this market, no one cares how impressive their historical background is.