Analysis: Foreign firms pay up to enter China's funds industry

Sun Jan 15, 2012 11:10pm EST
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By Samuel Shen and Nishant Kumar

SHANGHAI/HONG KONG (Reuters) - China's $350 billion mutual funds industry may be stumbling due to a sliding stock market and fierce competition but that has not stopped new foreign entrants from paying hefty premiums -- double of what they are offering in India, in some cases -- to get their toes in.

Lured by long-term growth prospects in Asia's second-biggest fund market -- estimated by some to hit $10 trillion in less than two decades -- foreign investors such as Power Corporation of Canada POW.TO and Japan's Mitsubishi UFJ Trust and Banking Corp have recently struck deals with Chinese money managers.

Some of those deals were priced at more than 8 percent of the target firms' assets under management (AUM) -- three times more than valuations for similar deals five years ago.

"It's a tough time for China's fund industry, but foreign investors are betting on the long-term growth potential in the world's fastest-growing major economy," said Howhow Zhang, head of research at Shanghai-based consultancy Z-Ben Advisors.

"On the other hand, in their home markets, there's little or even negative growth, so China has naturally become important strategically."

Zhang forecast China's funds industry could swell to $10 trillion by 2030, boosted by rising wealth and possible policy incentives that would channel more of China's massive savings and state pension funds into the capital markets.


GRAPHIC-China mutual fund   Continued...