PREPARATION, PERSEVERANCE & FLEXIBILITY KEY TO SUCCESS ONSHORE
In this latest Spotlight on China, we aim to provide our latest updates around the developments in the Asset Management areas in China, especially in light of the recent announcements by the Chinese government as they accelerate the liberalisation of the financial sector.
Looking ahead, international asset management firms have a lot to still be excited about in China. Despite a relative decline in activity over recent months, such as product launches and license approvals, the funds landscape continues to be the centre of attention for two long-term reasons: first, the clear commitment of Beijing to regulatory liberalisation; and secondly, the ever-changing nature and growth potential of the onshore market.
These market dynamics bring with them an ongoing flurry of activity that is keeping us busier than ever. Less “white noise” in the market from 2017/18 certainly doesn’t mean fewer people moving firms.
On one hand, new entrants seek to appoint talent in an array of roles, while on the other hand there are inevitable human capital-related needs as existing asset managers accelerate plans to expand their China businesses, as they are now able to wholly own local fund managers as early as 2020.
The journey to either full fund management status, along with further growth of existing onshore operations, has started to create a steady flow of replacement hires and “upgrade” hires. These are in many ways the result of a maturing strategy of some firms in China. We have seen that a second or third anniversary of a first-mover wholly foreign-owned enterprise (WFOE), for example, brings with it new requirements in terms of talent acquisition and retention.
In the coming pages, we aim to explain the specific talent-related needs and priorities of firms at different stages of growth and development onshore. One common theme continues to stand out: as China’s asset management industry continues to evolve, so do the challenges in terms of finding and managing human capital in this competitive and changing marketplace.
Drawing from our experience in working with global fund houses on their China strategy, we think several considerations are key to helping firms at different stages of onshore development to take their business forward:
Consistent, clear and strong leadership and strategy of how to approach the China market
Open internal channels of communication between offshore and onshore teams
A strong and collaborative culture that promotes employee loyalty
Flexibility to adapt to a landscape that is complex and constantly changing, often without much warning, in terms of regulations
Patience in their long-term commitment to China within a global business framework
It is becoming increasingly important for firms operating in China’s asset management landscape to understand the quite specific human capital needs they have, based on their growth ambition and where they stand today on the development cycle. We have segmented the current market landscape into 3 buckets, and our observation shows that in each of these segments, these firms have quite similar yet unique challenges with regards to human capital needs.
Based on the different strategies of the foreign fund houses operating in the domestic marketplace, the distinct groups of firms that have emerged require each asset manager to focus on hiring different types of individuals, as well as on managing and retaining that talent. Firms also need to be cognisant of the strategies required at a different stage of evolution. These trends reinforce our observations and expectations of an uptick in the volume of talent needed in 2019 and 2020 in comparison with 2017 and 2018. The “white noise” is reduced as firms are not all walking in lockstep.
Below is a snapshot of the PFM market and fund launches chronologically. Please note several of the product names are direct translations from Mandarin.
6 KEY HUMAN CAPITAL OBSERVATIONS
By combining the research results, taken from our survey conducted on the challenges facing WFOEs in China, with our ongoing dialogue with both candidates and clients, who are involved in the liberalisation and internationalisation of China’s asset management industry, we see six themes shaping the future of this sector.
1. Competition for talent has become even more fierce
The fact that “lack of available talent” and “lack of talent depth and skill shortages” rank as the biggest WFOE-related challenges and risks for many global fund houses, reinforces just how competitive the race for human capital has become. Asset management executives shouldn’t mistake the recent reduction in the “white noise” from the initial WFOE start-up phase for a pull-back from this market. On the contrary, some of the more established firms have been focused on upgrading, replacing and adding to their headcount. For later entrants that form part of the next wave of WFOEs, they are looking to existing WFOEs for their initial recruits. Adding to the competitiveness is the growing number of firms now also looking beyond making obvious hires from competitors in favour of individuals that enable firms to differentiate themselves and their China strategy.
2. The only constant is change
The surprise announcement from the State Council in mid-July 2019 that wholly foreign-owned fund management company applications would be accepted from 2020 – 12 months ahead of schedule – shows just how quickly the market can change. The influence on people as well as product needs to be understood and preparations put in place. Having a clear game-plan is essential for global firms to be able to adapt more quickly by making decisions at head office level in coordination with knowledgeable local leadership. This highlights the importance of having autonomy locally in China over key decisions, rather than frustrate leaders of the onshore business by head office retaining too much influence over the China strategy. As per the survey results on attracting talent in the first place and then keeping it, success will more likely come from strong management and leadership, plus better communication between local and regional teams.
3. Keeping pace with quickening regulation adds to the talent burden
At the time the schedule for fully foreign-owned asset managers was brought forward, the China Securities Regulatory Commission (CSRC) emphasized that this was part of a plan to accelerate its drive to liberalise the domestic financial sector. While this might seem a positive development at a higher level in head office, it puts (often undue) pressure on delivering on existing talent strategies. Further, the time and energy spent on pursuing previously agreed strategies may have been wasted given the need for significant flexibility. This makes it more challenging for global firms to be able to achieve goals that are considered, in our survey, important for talent retention – such as being clear and transparent about business strategy and goals.
4. Preparation and readiness is key to meet new requirements
The desire among many international asset managers to develop their China business can only be fulfilled if they have the leadership onshore who is able to understand what is required of them in terms of the regulations, coupled with established communication and coordination with head office to adapt at relatively short notice. For example, with the CSRC demanding specific experience for certain job roles within a full fund management company, asset management firms need to make quick decisions. Those global players that seem to be navigating the environment most effectively are also those firms that have been engaging with regulators with a human capital mindset – not just focused on product. Patience is also required, since from experience, unforeseen hurdles should be expected regardless of the time taken to plan at the outset. Again, our survey supports this need for readiness since strong management and leadership, plus an open and team-oriented business culture, are considered key to attracting talent in the China market.
5. Talent strategies depend on onshore business maturity and ambition
With the race to establish market share and brand awareness in China’s onshore asset management landscape now several years down the track, we have seen a clear separation among international fund houses depending on the extent to which they have embraced and invested in this opportunity so far. From our perspective, three groups have emerged: first, those charging ahead for full fund management status; secondly, those consolidating their PFMs; and thirdly, those looking to enter so at the start-up phase. Each of these approaches dictates a very different set of objectives and solutions for the talent acquisition, management and retention strategies that the firms need to employ. These firms have therefore developed their businesses in different ways and are seen differently by the wider industry – including, importantly, potential employees. For example, the early adopters, or faster movers, tend to attract candidates who are happier to embrace risk and change; more cautious candidates avoid global firms that are seen to be “breaking new ground”.
6. International strategies in China often don’t plug the talent gap
Many global fund houses look to apply tried-and-tested offshore strategies to China and expect these will be equally successful. This might be in the way they try to launch and distribute new products, or how they approach research and client management. Although this is logical, we have seen that it creates problems for employers – the local talent pool simply does not exist in some areas. The results of the survey, for example, showed that investment, research and portfolio management are jobs that present the biggest hiring challenges in the China market, with sales, client service and distribution also hard positions to fill. This has led to potential solutions such as internal mobility, global sourcing and offshore talent pooling becoming even more of a focus for international firms.
TAKING THE MARKET’S PULSE
WHAT IS THIS?
We conducted an anonymous survey into what is driving hiring and other human capital decisions for international firms. We are very grateful to the high number of survey respondents.
WHY DID WE DO THIS?
We wanted to produce a section based entirely on the views of you, your colleagues and your peers.
We contacted onshore and offshore professionals from both HR and Business sectors. Please see below for a breakdown of contributors.
Who contributed to this survey?
What do you think are the most pressing talent challenges facing asset management WFOEs in China?
What do you think are the best ways to attract talent in the China market?
What would you say are the key risks to your WFOE business in China from a talent perspective?
What functional areas do you find most challenging to hire into in the China market?
What do you feel are the most important business and personal drivers that improve talent retention?
Below are survey answers to the simple question of what are “people challenges” within the current marketplace.
Ever-tougher competition in China’s asset management market is creating ongoing challenges for firms looking to acquire and keep their talent, regardless of where they are in their growth cycle.
Our observation is that increasingly the most progressive organisations are those that are the most agile and proactive in how they approach talent acquisition. Adopting this approach involves looking at new hires from multiple avenues, represented by each of the talent sources outlined below.
TALENT MANAGEMENT & RETENTION
Below are the thoughts of employees of WFOEs across Shanghai with whom we constantly engage. We have gathered samples of their feedback concerning job satisfaction. As expected, the results are mixed. This is a distillation of those views.
“China is different” is a phrase sometimes overused – and often as an excuse. What remains clear is that whilst China is different, the much larger influence on talent retention are the same as elsewhere: good management, strong communication, keeping promises and respecting other people’s opinions. While China may be different 25% of the time, the remaining 75% relies on good management.
WHAT’S NEXT FOR GLOBAL FUND HOUSES IN CHINA
There is little doubt about the clear and concerted efforts among regulators and industry players alike to help accelerate and evolve China’s onshore asset management industry.
As such, we anticipate the next 12 to 24 months to be busier, and probably more challenging, than what we have seen to date.
Global fund houses with high ambitions for their China business will be among the trailblazers in their bids for the full fund management licenses or JVs (possibly with banks), while a different group of firms taking a slightly more conservative approach will seek to consolidate their WFOE and PFM operations.
The paths these firms choose will require them to tackle a different set of regulatory challenges and changes – all of which will impact how they manage their human capital. Our observation is that the market is settling into three different groups with different goals and needs.
This makes it essential for them to keep several key talent-related objectives at the forefront of their strategy, as highlighted by the findings in our survey:
Detailed planning – firms entering the market or seeking full fund management status need to plan very carefully and get full agreement and support at the head office level.
HR, a strategic and critical partner – the human capital considerations mean HR needs to be involved in strategic decisions from day one. Without their input and counsel, seemingly well thought out business plans might fall short.
Agile hiring strategy – firms need to be opportunistic in terms of when and how they identify talent, regardless of timing, so getting head-office sign-off on investment should be done ahead of time.
Be adaptable – regulations, strategies, market trends, investment appetite and other dynamics will change, so being ready to pivot quickly is vital.
It is essential to keep in mind that while China is an emerging asset management market, its key attributes are consistent with other countries at a similar stage of development. Ultimately, a best-practice management style will prove itself a key differentiator between those international firms who have what it takes to hire and retain the staff they want, against those firms who find it challenging to gain traction. This means good, adaptable and professional managers who can develop and execute a strategic vision with realistic expectations, coupled with a long-term commitment towards its people. We strongly believe these are the types of firms that will triumph over time.
OUR ASSET MANAGEMENT TEAM
For more information on recruitment trends, please contact Profile Search & Selection's Asset Management team:
Hong Kong Office - Andrew Oliver
Singapore Office - Stanley Teo
Shanghai Office - Yao Xiong