(China Alert) Navigating a billion $$$ unknown
-Z-Ben Advisors believes that foreign managers should expect large and, in some cases, recurring capital calls
-This is a result of greater regulatory pressure on shadow banking
-Risk management should be the focus of both regulators and FMC stakeholders
Update: Z-Ben Advisors believes that FMC subsidiaries are on the verge of a major readjustment as a result of stricter capital requirements. Using the reported new rules (although not formally released by CSRC), by our estimations, FMC subsidiary AUM growth of RMB1.3tr (USD197.4bn) in the first quarter of 2016 would result in a current total capital requirement of approximately RMB10bn (USD1.5bn). If this rule was to apply to total outstanding industry AUM, the extreme top-line capital requirement estimate for managers would be RMB75bn (USD11.4bn). While we don’t expect it to be that high, it demonstrates the effect that continued subsidiary AUM growth could possibly have over the coming years. We expect that subsidiaries will be making adjustments to their business model imminently and some are likely to already be working on recapitalization. Each manager should look at their subsidiary to see what adjustments need to be made. The core priority should be combining business strategy and capital planning with risk management.
Very rarely does something come along and shake up the competitive landscape like this. Z-Ben Advisors believes that individual foreign managers should now…
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