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American International Group Inc. (AIG) corporate headquarters in New York is shown in this file photograph from November 10, 2008. AIG posted on March 2, 2009 a $62 billion loss in the fourth quarter and is set to take a $30 billion lifeline from the U.S. government to counter a crisis that is punishing companies and crippling international trade.
China's decision to open the country to U.S. mutual fund sales could be an important new avenue for growth for a mature industry.
American companies lobbied heavily for the change in the hope China's rising middle class would want to invest with established asset managers, said Geoff Bobroff, an industry consultant in Rhode Island.
In coming years China "is clearly where the growth is going to be," he said in an interview on Tuesday.
The U.S. asset management business is fiercely competitive. Growing in developed markets outside the United States is also difficult for U.S. fund managers, because so many of those markets have their own asset managers with local brands.
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But China and other developing markets have fewer domestic financial competitors.
Access to Chinese customers for U.S. mutual fund products was one of a number of steps China has agreed to take to open its markets, U.S. Treasury officials said on Tuesday.
U.S. asset managers such as closely-held Fidelity Investments of Boston, T Rowe Price Group Inc of Baltimore and Franklin Resources Inc of San Mateo, California, have made a point of expanding overseas, often with local partners.
Another firm, Affiliated Managers Group Inc of Boston, began a new effort in January to work with institutional investors in China.
At the end of 2009, China accounted for just $381 billion of the $22.9 trillion held in mutual funds and similar vehicles, according to data from U.S. trade group the Investment Company Institute.
To date, a large share of the foreign assets flowing into U.S. fund companies have come through vehicles called "Undertakings for Collective Investments in Transferable Securities," or UCITS.
Many are copies of traditional U.S. mutual funds, but their structures make it easier to hold nontraditional securities sought by foreign investors such as alternative assets and hedge funds. These holdings can be more profitable, but also more risky than standard funds are allowed.
CHINA'S INVESTMENT CLASS
So far, China has largely limited U.S. fund firms to operating as joint ventures with local partners, aiming to build up its own asset management industry in the same way it stoked other sectors.
It also has limited the ability of Chinese retail investors to put money overseas, partly to stimulate growth of its own economy. China will still face some who are skeptical that real reform is coming.
"The Chinese will formally allow some mutual funds sales -- it's just that they will rig the system so that it favors Chinese banks, which is the same thing they've always done in financial services," said Derek Scissors, an economist for the politically conservative Heritage Foundation.
But others expect real changes to satisfy domestic demand. The Chinese public's appetite to own foreign stocks is growing, said Daniel Enskat, senior managing director for New York consulting firm Strategic Insight.
For instance, he said when a few Chinese banks were allowed to sell special domestic products using external fund managers such as T Rowe Price, they took in $175 billion in 2007 alone -- including $4 billion in the first morning they were available.
"People stood in line around the corner to get in," he said.
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