China Institutional Market Sizing Report: The Big Blind, 2011
China’s major institutional investors represent important business development opportunities for many international firms seeking to grow their regional asset base. The fact that solutions can be provided while utilizing offshore products only adds to the appeal. Be it a one-off engagement, or part of a broader China strategy, institutional business is an important and lucrative prospect for many firms. Proper sizing, and determining the likelihood that any given opportunity will yield mandates is an extremely important part of the proposition and one that any firm interested in China’s institutional market must accurately assess.
- Institutions Heading Offshore: Major institutional investors in China are now at a tipping point: they are legally able to deploy a significant amount of their total assets offshore but few have actually done so, given concerns over volatility, as well as the implicit hurdle rate introduced by an appreciating RMB. If managers are able to address these concerns, they stand to reap considerable gains.
- Local Platforms: The choice of how to approach China’s institutional market has become much more complex in recent years. Domestic partners can certainly help build relationships with second-tier institutional investors; having a wholly-owned presence (representative office) also allows a firm to develop and maintain their own set of relationships.
- Diversification Needs: Most of China’s institutional investors are in need of additional diversification within their portfolios. This is especially true of the segments that are liability-driven: insurers and pension funds. At present, only a small number of these groups have utilized geographic expansion to gain liquidity and hedge against domestic risks, but more are certainly on the way.
- Targeted Approach: Not all institutional investors are created equal, at least as far as asset managers are concerned. The largest by assets are not always the groups that are most likely to expand their investment portfolios, especially with regards to offshore targets. We provide a short list of groups whose investment objectives best match what international firms can provide.
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