Strategic Outlook July 2015

The Advent of 100% Control

Chinese regulators have now formalized the possibility of 100% foreign (non-Chinese) ownership of an asset manager. This means that, for the first time, international firms with interest in the Mainland market will have options outside of the limiting joint-venture approach, which has been the primary avenue for past attempts at market entry. This degree of control in China, along with percent of ownership, is unprecedented.

The opportunity – a captive market with substantial investment capital – is now real. Operational challenges and costs are as well, and although many have written the Mainland market off as being entirely unapproachable, nothing could be further from the truth. Successful execution of a 100% fully-owned asset manager will require investment capital, time, a degree of autonomy, and most importantly, human resources.

•Setting up a dedicated and fully-staffed legal entity will become the preferred way of conducting China-related business; both for targeting RMB investments and for sourcing Chinese retail and institutional assets.
•Managers and service providers which continue to conduct business operations entirely from Hong Kong will be at a distinct disadvantage against onshore competitors in China which are closer to clients and investors while simultaneously able to exercise more control over critical operations.
•Many large organizations have been slow to move on this front given legal uncertainty. That uncertainty has now been removed, however, and a large number of more risk-tolerant players have already set up in the Mainland, and are already building a set of best practices that can be looked to for direction.

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