(China Alert) Carving up a USD2.5tr fund business

– FMC non-core AUM is continuing to grow and makes up the larger portion of the industry
-In the face of new regulations, some subsidiaries are shrinking while others press ahead
-Segregated accounts may increasingly become the driver of non-core AUM growth

Update: Ironically, FMC non-core business still makes up the core of fund industry AUM, eclipsing the public mutual fund sector. Combining both core and non-core AUM, the three largest firms in the third quarter were CCB Principal, Tianhong and ICBC Credit Suisse, all with over RMB1tr (USD145bn). Overall, the parent company segregated account (SA) business continued to grow while subsidiary growth slowed sharply. We are finally seeing a competitive reaction – although somewhat delayed – to impending capital requirements on subsidiaries. Some firms are beginning to wind down their shadow banking activities run out of subsidiaries while others seemingly stay on course. Z-Ben Advisors believes these movements in the short term do not necessarily reflect long-term plans, and decisions still need to be made about the direction of business strategy.

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