Analysis of Fund Management in China - Research Paper Example

Fund Management Introduction The fund management is the process whereby assets collected from the various s by the investors is invested in the capital market. The sector of fund management is an essential part of the institutional investment process, but the fund manger may not be part of the institutional investor on the basis of the legal matters. Thus, the paper will focus on the retail investment funds in China that is one of the components of the fund management because the retail investment funds are gaining the fast popularity in the various markets in China. The increasing popularity of the retail mutual funds in the market is accompanied by the various changes that will be evaluated in the paper. The paper will evaluate the causes of the changes that have caused the retail investment funds to capture the china market, and the changes that are anticipated to occur in the future. Therefore, retail investment funds are type of mutual funds where various individuals pool their asset together in order to access investment opportunities that would not be obtainable to them. Retail investment funds in china Retail investment funds have gained popularity in the emerging market because in the fifteen years ago few people were unaware of the existence of the retail investment funds (Jeffrey, 2010). Individuals could not purchase listed securities in the market because extremely few countries had stock market and others had relatively little trading. Fund management is the management of financial assets on behalf of a client that involve the selection, buying and selling of financial assets. Meanwhile, it involves the collection and re-investment of any income from assets that deals with any certificates and paperwork (Fraser, 2011, 87).The Retail Investment Funds involve offering details of performance of the fund to the client that involves both retail and wholesale. Recently, the retail investment funds have changed spectacularly because most of the countries have created stock markets. Thus, managed investment funds have played a key role in enhancing the drastic changes in the stock markets of various countries. The entry of the retail investment funds into the market has catalyzed many emerging stock markets by improving liquidity, and supporting the market infrastructures, in the respond to the demands of the international funds mangers. Over the past 20 years, the retail investment retail has promoted the funds sector in emerging markets by working closely with institutional investors, investment banks and the government regulators. Mangal and Sunil (2011, P. 190) indicate that the retail funds plays a key role in mobilizing large volumes of private capital for equity investment in the stock markets, and stimulate the growth of securities market in China. Meanwhile, they assist in improving small and medium-sized corporate to access external equity and get management advice. The retail investment development and opportunities are gradually spreading to the most of the population in china that attach great significant on building real estate. According to Swati (2005, 56), the global recession affected the China’s economy severely, but china is creating a favorable environment for the retail funds investment schemes. Recently, Chinese people stand in line to purchase retail funds, but as the number of retail funds increase, the situation changes. Thus, the companies are required to work hard to support their products and earn investors trust. The retail investment funds in china depend on the banking system to sell products, and for decades, Chinese resident’s assets were largely in the form of bank savings. Jane ( 2010, 80) indicate that the bank loans in 2006 reached 18.11 trillion Yuan, increasing to 14.2 percent year by year, but the growth rate was declined by 5.9 percent compared to the same period of prior year. The retailers have become retail investment funds target to the customer, but banks may lose some of their depositors to fund managers because they are not concern with competition. The structure of the initial changes of fund managers started to fade, and many retail and institutional investors became hesitant of additional exposure to investment retail funds. Several had to close to redeem their shares to reduce losses and re channel their money to banks deposits. The year 2004, experienced an expansion of china’s fund management industry, especially the retail investment funds. However, it showed that there was a long way ahead for fund managers before they become significant managers of wealth in china. The retail funds investment in china has allowed households to hold local currency bonds in more liquid and easily tradable units. They have brought improved the trading in the china economy actively in response to changes in market conditions because they have brought extra liquidity to local markets. China’s retail investment funds changes have been characterized by domestic demand growth that transforms the economy. The securities brokerage corporate plays a significant role in the marketing securities investment funds because almost every retail investment funds has brokerage house as one of its shareholders. China’s commercial banks were given opportunities to manage funds only after the 2004 implementation of law governing securities brokerage investment in fund management firms. The retail investment funds changes in china were caused by the sector that gained favor against other sectors that led to increase of the retail funds investment. According to Juan and Fernandez (2011, 121), retail investment amounted to 30 percent of the total commercial transaction volume in china this was because of capitalization on the nascent economic transformation process. More investors come to recognize the permanent changes in the retail investment funds in china. The structure of the retail investment funds consist of the securities firms and retail investors, and the structure of investors underwent great changes within a short period. Securities corporate and future brokers became the main body of the market 1n 2009, that allowed illicit investment funds to be stopped. Since, 2009, several big securities sectors were forbidden from trading shares on the own account, and many securities were sold (Glori, 2011). The retail funds will offer diversification to the investors because they provide a choice for investing in either stocks or bond and they will give the returns on securities. Meanwhile, they have slightly lower expenses that will be beneficial to investors because the cost of entry will be low. The audited performance records and expense of the retail funds provide investors with historical data on the returns, fees and other operating expenses. Steven (2011, 45) indicate that the retail funds will offer the flexibility in risk level to the investors because they will meet their personal and financial goals. For instance, it will benefit investors who want their money to grow over a long time, and who need current income and do not want an investment that fluctuate in value. Greg and Vassilios (2005, 65) claim that the retail funds are risky investment, and only wise investor, who will benefit from them. The retail funds tend to have vast returns that investors will be interested in order to control the income and the opportunity for financial stability. Causes of changes of the retail investment funds in china The geographical distribution of the retail funds in china led to the changes of the funds throughout the largest centre, but mainly a domestic market. The china is the second-largest retail market for it clients because of the domestic market, and the fact that it has became the key international fund management centre. John (2009, 213) indicate that the inequality distribution of the retail funds led to declines in stock markets following 2009 due to declines in fees that led to falling profitability in many regions. Meanwhile, most of the people were left unemployed the mutual funds would not get cash to pay its workers. Recently, the retail investment in china had better stock market performances that led to the employment of the unemployed and increased the fees. Ric (2007, 89) indicate that the Costs of the retail funds were extremely expensive that was a major problem to many clients who were not stable financially. Thus, the retail investment funds led to large increases in salaries and bonuses of the client who involved in the mutual funds and they improved their living standards. The financial crisis of 2008 in china led to the large falls in stock markets that led to corresponding falls in fees. The retail funds investment in china has allowed households to hold local currency bonds in more liquid and easily tradable units. They have brought improved the trading in the china economy actively in response to changes in market conditions because they have brought extra liquidity to local markets. China’s investment funds changes have been characterized by domestic demand expansion that transforms the economy. The securities brokerage corporate plays a considerable role in the marketing securities investment funds because almost every retail investment funds has brokerage house as one of its shareholders (Garry, 2006, 109). China’s commercial banks were given opportunities to manage funds only after the 2004 implementation of law governing securities brokerage investment in fund management firms. Four big banks in china led to the change of the asset management in the emerging markets that drive expansion in their business and that these markets will be more significant than developed markets to their organization’s future prosperity. There was an increase in revenue from their retail investment funds operations in the past years and there was anticipated growth in the future. Most of the investor in china benefited from these mutual funds, and increased the spread of the activity in the rest of regions. These include saver, who spend a lot of their life saving in order to ensure they secure a comfortable retirement, and Speculator who benefit from the mutual funds because they prefer managing their investments in order to attain higher returns of the retirement investment. Changing that encounter china equity ownership are the mutual funds institutions, especially pension funds and insurance companies that cause a decrease of their holdings of china equities, but causes retail investment funds to increases. Phoebus (2011, 105), the globalization has caused the changes of the retail investment funds in china because they are now more diversified and managed properly. Fund Management Retail investment in china has seen an upward trend in the current few years with different multinational companies investing all across the chain. These retail chains are developing even in the remotest parts of the country with a population of roughly a million people. The upward trend owes its success to a number of several factors most importantly being a staunch understanding of the local markets in the country. This good understanding of the market has helped investors to be specific in the areas they want to invest in and put off those who are after quick and easy deals in China (Lu, 2010, 1). This upward trend has made china a fair market for investors and help the country itself pull out of global recession because of the fast growth of in its GDP, which is expected to be approximately, between eight and ten percent in the next few years. Such growth will make China move up the ladder in terms of market share and overrun the current leaders USA. China market experts have already concluded that the retail market in china is the best area to make an investment today as it has the best retail market in the world. The most influential factor that has led to the growth of the country's retail market is the rural urbanization. This has helped with creating a healthy market for investors in the retail market. There is also another factor which has led to this development is the change in consumer culture in china as a result of urbanization with a good number of cities having a minimum population of a million.(White,2011,1). China also has a number of metropolitans, which have been identified to have a potential for retail growth as they are under retailed. These metropolitans have attracted international investors in china because they offer a promising ground for them. Retail industry is already making an impact in China, which has led to the government to hold conferences all round the country, and rank the metropolitans in terms of the potential, they have with Beijing leading in the list. In addition, consumer expenditure has made the retail market has a promising upward trend making the number of the potential number of investors in these metropolitans to increase significantly. (White, 2011, 1) However, there are several challenges that have affected the upward trend in china's retail market. One is the amount of time it takes for regulating bodies to approve a project is quite lengthy. There is always a need for regulating bodies to control project approval, however; they should re structure the time they have to take as it discourages the investors and slows down the growth of the retail market as a whole. (Lu, 2010, 1) Another challenge is the strict government regulations, which have proved to be the largest hurdle the retail market has to overcome. This stringent rules have limited number of foreign investors in the country who if allowed the GDP growth would increase slightly over ten percent by now. The government should work on not to limit the number investors in the country with the current fertile opportunities in the metropolitans. The other challenge the locals experience is particularly stiff competition from foreign investors who have a large amount of capital, which in turn discourages the locals from investing in well potential areas in the metropolitans. The government should chip in and ensure the locals can access loans and other credit facilities, which will significantly have a tremendous significant on the growth of the retail market in china as a whole. Retail market in china has also proved to be exceedingly difficult for foreign investors to establish themselves because of the stringent government regulations and competition to some extent by the locals. In addition, the business permits required by investors in order to invest in the country are a challenging fact that has certainly put a hurdle on the growth of the retail market and whose amendment would lead to a significant growth (James, 2000, 6). China's retail market also has restricted products in comparisons to other retail markets in the world in general. Only companies that have large production plants can sell products, which makes them, have an enormous market share in the country's retail market. This move creates monopoly and a challenge by multinational investors and the well established local key players. The government should work on the regulations to place no restriction to products in the retail market (Cowdell, 2011, 1). Apart from these challenges that the retail market faces, the government has promoted the use of e-commerce in the retail market and has set a target that online business is to reach in the next decade, which is estimated to be six percent of the total share of the retail market. In order to boost e-commerce in the country, the government is reviewing its regulations that may restrict the growth of e-commerce and inhibit its growth in the retail market. An outstanding example is in 2004, the government allowed foreign investors to bring in refined oil products, which has helped in the growth of the oil sector. Investment managers face several problems in constructing capacities, which are vital to compete on a specialized basis in the market. Retail investment in china benefits both economies of scale and range. There are various strategies of managing funds so that the company and its clients both benefit. Some of the models that are used in fund management include; universal models, boutique and multi-strategy models. Universal models allow customers to be served from one-stop shop, offering product ranges benefit from the diversity of product available. This assists in the building of high quality brands, which is increasingly significant in the current market where investors have increasingly embarked on the voyage quality. They expand fully crosswise product ranges, from inert through customary and optionally dynamically supervised funds (Deloitte, 2010, 1). The multi-strategy model differs from the universal one by the idea that investment professional operate best under differentiated, semi-autonomous units under an umbrella. The advantages of scope and scale a re exploited from within the parent company. It focuses on enabling several finance managers to commit on venture decision-making and presentation by offering scalable, joint and cost-efficient communications. The boutique model on its part is differentiated by the scope to which its allotments, people and processes enjoy organizational and cultural autonomy. They mostly depend on partners, and service providers to achieve scale and scope. China’s fast mounting controlled funds segment presents remarkable opening for both home and international investors. With alterations, the industry’s responds to various macro trends, comprising of a goal of increased domestic consumption, a better funded pension system and investment overseas, fund managers face numerous challenges accessing this lucrative market. China has $22.8 trillion in resources under protection and management, and $ 2.1 trillion in possessions under management by 2011 (Vision focus, 2010, 1). China has shown considerable deftness over the precedent three decades in running its evolution from a small, relatively clogged market to a rising economic superpower. It is highly credited with lessening the impact of universal pecuniary crisis, mostly in the Asia-pacific section, by upholding its own development and adding to global markets with its sizeable foreign reserves. The growth of Chinese financial markets, has instigated the speedy ascend in the size of China’s managed funds zone to over $335 billion in assets beneath management (Ye, 2010, 8). Nevertheless, the assets linger radically underweighted in international fund portfolios. This is mostly because china restrictions on overseas contact to china’s markets (Fabozzi 2009, 233). As the economy grows, the government committed to offering a safety net to the elderly, a rising purchaser class and a force to internationalize the Yuan and the economy more broadly, the managed funds sector gives an immense opportunity for domestic and universal investors. As foreign participation in the funds sector keeps facing limits in the short term, development in the managed fund sector in china offers exceptional long-term prospects. The internalization of China’s capital is assisting in further improve the quick rise in the size of its managed funds sector. From 2008 t0 2010, foreign fund management companies (FMCs) introduced 174 new funds to china market, and growth in anticipated keeping growing. Chinese fund companies are investigating opportunities to elevate assets from Quality Foreign Institutions Investors (QFII) as their retail fund market continues to stagnate. However, QFII have found it difficult to attain, as many managers are not for mainland-based investment advisers. Assets under managed in china retail investment funds have decreased from a peak of Rmnb 3,000bn ($466 bn) in 2007 to Rmb, 2,300bn as of 2011 as Z-Ben Advisors consulting firm from Shanghai records. Presently, 113 firms are certified with a QFII license in china. They have a combined quota of roughly $20bn, according to the data on the china securities regulatory website (China’s regulatory commission 2011, 1). Chinese fund companies offer advisory services and trade executions to QFII customers. While Chinese fund companies’ want to attract foreign investors through QFII funds and services, some investors do not embrace the idea of hiring local managers currently. Around 50% of firms with QFII licenses and quotas apply their in-built teams to invest in china, while some supreme affluence funds and university funds prefer services of external advisers (Vision focus 2010,1). Third-party service contributors give domestic funds the prospect to condense their capital disbursement by outsourcing key procedures such as venture management, functions and trade resolution. The chief strengths of quality global third-party provider lie within its ability to facilitate operations, technology and product expertise, coupled with a worldwide presence and commitment (Rhodes, 2000, 256). Conclusion Some of the prevalent prospects for fund managers will come about because of China’s increasing personal wealth, which will create an ever-large pool of potential investors for managed fund products. The government is particularly keen to channel domestic savings safe from volatile and inflationary market such as property. This act has substantial potential to generate opportunities, to introduce new financial products, such as managed funds, and offer greater scope for both international, and investors seeking additional access to China have managed funds industry, and domestic players seeking to internationalize their operations and revamp their products lines (Carson and Litmann, 2009, 218). List of References Carson, T.N. & Litmann, W.P. (2009), Sovereign Wealth Funds, Nova Science Publishers Inc. Cowdell, B and Cowdell (2001), Investment Management, chs. 14, 15, 16 and 17. Deloitte (2010) Winning in Wealth Management: Strategies for Building Profitable Business Operating Models, available at: Fabozzi (2009), Institutional Investment Management, Chapter 25 (Investment Companies, Exchange-traded Funds and Investment-Oriented Life Insurance) covers similar topics to the Cuthbertson and Nietzsche reference above, but from a more USA perspective. (2010). china’s funds future. Vision focus. State Street. 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