China’s vice-premier Li Keqiang caused a ripple of excitement in the asset management industry as he addressed an audience in Hong Kong last month. The stated intention to “beef up” Hong Kong’s status as a financial centre had been broadly anticipated, but the keynote speech brought a palpable feeling that things were speeding up.

“Support will be provided for building Hong Kong into an international asset management centre,” Mr Li said, while outlining plans to launch an exchange traded fund based on Hong Kong-listed stocks and specific measures to help develop offshore renminbi business.

However, some analysts believe foreign managers will have to take a very long-term view or may even decide to exit the Hong Kong asset management industry as more mainland Chinese asset managers start setting up in the territory and competition intensifies.

Howhow Zhang, head of research at Shanghai-based fund consultancy Z-Ben Advisors, expects more deals such as Deutsche Asset Management’s arrangement with its Chinese joint venture, Harvest Fund Management. Harvest established a presence in Hong Kong in February 2009, but by July of the same year Deutsche and Harvest signed an agreement under which Deutsche signed over management to the new entity, Harvest Global Investments, of DWS mutual funds employing an Asian equities strategy and a Greater China equities strategy, and transferred a number of senior managers and a sales team.

“Some of those wholly owned PRC [People’s Republic of China] companies are looking to buy asset managers in Hong Kong, possibly hedge fund managers, but also Hong Kong subsidiaries of global asset managers,” Mr Zhang says, adding that some overseas global asset managers could be looking to sell as margins are looking tighter.

In a client report issued earlier this year, Z-Ben, which primarily makes its money providing research for foreign investors or investment managers, outlines the difficulties facing foreign asset managers.

“We believe international fund managers’ anxiety is rooted in two chronic ailments: insecurity (are Chinese fund management companies going to steal my China/Asia business?) and relationship issues (what do I do when my JV [joint venture] fund management company sets up a subsidiary in Hong Kong?).”

Z-Ben makes no attempt to allay those fears either: “How much of your business Chinese firms will take remains to be seen, but you can be damn sure they are going to try.”

Foreign managers, Z-Ben says, will have to imagine what future benefits they might accrue by their continued presence in Hong Kong and balance that against the outlook for increasing competition.  “Currently, there’s still more co-operation than competition,” says Mr Zhang, referring to the relationship foreign managers have with their joint ventures, but he says he can see that situation changing to a far more competitive environment in the near future.

Mr Zhang’s view of what could play out in Hong Kong is borne out by recent research conducted by PwC on foreign managers’ experiences on the mainland.

But Sally Wong, chief executive of the Hong Kong Investment Funds Association, is upbeat on the coming opportunities: “We expect that as the market continues to liberalise, there will be more products available.”

Having more products available will widen access for retail investors, something that might keep some doubtful foreign managers in the game. Rosita Lee, director and head of investment product business at Hong Kong-based Hang Seng Investment Management, says the opening of the renminbi market in Hong Kong to retail investors will greatly benefit HSIM.

HSIM is a wholly owned subsidiary of Hang Seng Group, a Hong Kong financial institution in which HSBC holds a majority stake. The index specialist, which benefits from its relationship with another member of the Hang Seng stable, Hang Seng Indexes, is the largest provider of exchange traded funds in Hong Kong in terms of assets under management, which Ms Lee says reached HK$54bn ($7bn) at the end of July 2011, spread across its three ETF products.

HSIM expects to be an early beneficiary of another development announced by Mr Li in August, the launching of mainland Chinese exchange traded funds based on Hong Kong stocks. Ms Lee says development of the retail market on both sides of the Hong Kong-China border constitutes the most important new opportunity for asset managers.

Binay Chandgothia, managing director and portfolio manager for Principal Global Investors (Hong Kong) agrees. Far from being concerned about the possibility of having to compete for market share with its Chinese joint venture or joint venture partner, Mr Chandgothia says he thinks there will be more than enough to go around.

“My sense is that it’s such a big market that it will present opportunities for everybody, no matter what shape it takes,” he says.

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