ASSET MANAGEMENT IN THE "NEW NORMAL"
Six months ago, our “Spotlight on China” report focused on “Preparation, Perseverance & Flexibility” as the key ingredients for successfully growing in the onshore China asset management market. Since then, much has changed. As we adjust to this new reality of the global pandemic, rising political tensions, economic uncertainty and endless Zoom meetings, the question remains – how are companies navigating the human capital challenges of the onshore China asset management market in this new normal?
In this report, we seek to combine our observations of this space with the direct insight of leading asset management professionals operating at both regional headquarters as well as onshore in China. We focus on the current market sentiment and try to decipher the formula for successfully acquiring, managing and retaining the best talent in one of the few busy recruitment markets today.
As some firms advance to the next stage of development with their full Fund Management Company (FMC) license applications, others are staying focused on the Private Fund Management (PFM) license and others are seeking different routes to tackle the market. There are a few things that remain constant – there is a shortage of talent, a rising number of employers are chasing the same pool of candidates, and human capital remains the key element to success or failure.
Areas covered in this report include:
The impact of COVID-19 on the corporate ambitions of international managers moving into or expanding onshore
How those firms who are already well established in China are pivoting to the new market conditions, some thriving, others hardly surviving
The Four-Lane Highway of the firms pushing ahead with the FMC, consolidating PFM, pushing ahead with new market entry, or pausing their activity
Key observations around the candidate market, how it has matured and evolved, and what factors are driving the career decisions of the best talents onshore
What’s next in the coming 12 months, and what the challenges and opportunities might be in this ever-changing landscape in China.
This report focuses entirely on the human capital side of the Chinese asset management market. We intend for this to be an observation piece and to spark debate and further conversation. Please reach out to us if you wish to discuss any of the content.
Below is a snapshot of the PFM market and fund launches chronologically. Please note that several of the product names are direct translations from Mandarin. We have not addressed the FMC market as, although license applications are in process, there are no funds launched as of yet.
Source: AMAC Website (11.08.2020)
THE FOUR-LANE HIGHWAY
For some firms, business building during COVID-19 has created a whole new set of challenges for what is already a very tough and competitive Chinese market. Those with existing onshore infrastructure and teams are in a significantly better position to take advantage of the ongoing travel restrictions and logistics around hiring remotely. The other COVID-19 challenge is the impact at the global head office, as some firms are more cautious with more pressing issues domestically.
Below we review the different groups and the human capital challenges observed. Previously, we spoke of the three groups: Fast Movers, Consolidators and New Entrants. In this edition, we split it into four lanes, from firms who have accelerated towards FMC, to firms who have stepped on the brakes.
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.
WHY THE SURVEY?
We wanted to produce a section based entirely on your views and those of your colleagues and peers.
We contacted onshore and offshore professionals. Please see below for a breakdown of contributors.
To what extent has COVID-19 influenced the commitment of your head office to further expand your China business?
HEAD OFFICE SUPPORT
How would you rate your global leadership’s effectiveness with respect to dealing with COVID-19 within your organisation?
I have received significant support from my global head office during COVID-19.
COVID-19 has negatively impacted the decision of the global head office to apply for PFM or FMC licenses.
How do you feel the standing of your HR function has been affected by the work it has done with regards to COVID-19?
How would you rate your local leadership’s effectiveness with respect to dealing with COVID-19 within your organisation?
What is the talent outlook for the second half of 2020?
SHORT TERM HIRING IMPACT
For the remainder of 2020, which specific areas of your business would you anticipate seeing the biggest impact in terms of hiring plans being slowed down? (Please note respondents were free to choose more than one area.)
Some talent acquisition challenges remain unchanged in the WFOE space, and there is still an abundance of roles with a limited supply of candidates. However, the market has evolved to some extent over the last six months, both from an employer’s and employee’s perspective. Employers are starting to focus on candidates with more in-depth domestic experience as the market matures, and the opportunity for long term success becomes apparent. Employees, on the other hand, continue to develop a keen sense of what they want, and more importantly, what they want to avoid.
KNOWING YOUR AUDIENCE
Companies who have been the most successful when seeking to employ the best talent, and to retain them long term, have spent time developing a proper strategy in advance. The candidate pool has matured compared to 2019 and continues to develop apace. The golden TA rule that “the best candidates ask the toughest questions” is global and is not a new concept; however, it is becoming more important than ever before in this highly competitive landscape.
China Strategy – The ability to firmly articulate a clear commitment to growth in China is a simple but crucial element. A few years ago, it was acceptable to be vague about licenses and partnerships. Now, however, it is not, and the best candidates will drill down to ascertain that a deep level of thought has gone into the coming months.
Local Leadership – The importance of stable, locally-based leadership is vital, and often more important than the actual corporate brand itself. In China, the pull factor of local, well-respected leaders cannot be over-emphasised. The reverse holds true should a company make a misstep with a senior hire, resulting in constant turnover at GM/CIO/CCO level.
Respecting Experience – Strong local candidates with strong local market knowledge and understanding want to ensure that they are hired for their experience and that they will be listened to. They will not expect total autonomy or a free reign; however, the most significant negative for locally-based candidates is that their advice will be ignored by regional HQ, and they land in a more execution type role.
THE THREE Cs
Hiring quality talent in China is always challenging. Variables to consider are plentiful, and different firms attach different priorities. Bridging the gap between language and culture is hard, and many fall foul of this until they have learned by making mistakes. We advise clients to keep things simple, and we often speak of “The Three Cs” as a guide; however, the most important thing is to realise that some skillsets outweigh the others.
Communication – The ability to speak English. Communication is the smallest “c”, but firms often make the error of assigning greater significance to a Chinese candidate’s English language skills.
Capability – The technical ability and track record of delivering success onshore in China. Although this seems obvious, the key words here are “onshore in China”. This is a reasonably large “C” and needs to be validated by your onshore partner’s input.
Culture – The ability and, more importantly, the desire of the candidate to adapt and build trust. Assessing a candidate’s cultural fit takes more time; the employer needs to invest more in the process than usual and spend longer validating via references and market feedback. Culture is the largest “C”, making it the most difficult, but most important.
TALENT RETENTION & MANAGEMENT
In our last report, we made the following statement:
“China is different” is a phrase sometimes overused – and often as an excuse when hiring goes wrong, or retention is poor. What remains clear is that whilst China is different, the much larger influence on talent retention is 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.
Despite COVID-19, the onshore asset management market continues to grow and mature at a pace unseen in other markets across Asia. We are well past the three-year mark from the first PFM fund launch, and the level of competition for market share continues to exert pressures on companies to try and retain their best talent. Added to the maturity factor, there is now the logistical challenge of hiring remotely for critical senior positions, which COVID-19 has introduced, should the company fail in their retention efforts.
The comments below are a distillation of the recurring views we hear day to day from the “employee/potential candidate” cohort.
We feel that the tone of these takeaways underlines the absolute need for a global gold standard of professional management to take place in China, as much as London or New York. The need for regular, empathetic and consistent communication during these challenging times is paramount to success. China is different, and the market is tough, but retention of the best staff is within the sphere of influence of local, regional and global management.
Below are four areas of discussion which keep coming up. While they are not necessarily human capital related, they will all have an impact on the challenges and opportunities in the years ahead.
THE EMPIRE STRIKES BACK
These past few years, foreign firms setting up in China have been grabbing the headlines. However, we are currently witnessing a resurgence of Chinese asset managers and JV asset managers. They are hitting back and are hiring strong senior talent in an attempt to meet the challenges from foreign companies. Mainland giants such as E Fund, Bosera and China AMC may not have seen the PFM as a threat to both business and top talent retention, but the FMC could be a different story. In a pre-emptive strike, we have observed that the Chinese funds, as well as the well-established JVs, are making moves to secure their talent and add leaders to the management team in the face of anticipated competition.
TO JV OR NOT TO JV
Strategic changes, U-turns and pivots are expected when a marketplace goes through regulatory transition and opens to outside entities. These changes are evident in the China asset management space. While some firms are seeking to take control of existing JVs, such as the mega-deal rumoured around China International Fund Management Co Ltd, others are trying to exit. Some have seen a distribution JV with strategic banking/private banking or insurance partners as a good entry point into the market, taking the view that it is a lower risk approach. There is much speculation over the long-term upside for the foreign majority “owner”. Many feel that 51% sounds like control in international markets; however, when speaking about the Mainland, it can be far from “control” in the day-to-day.
SHOW ME THE MONEY
2020 compensation is already a topic of quiet discussion as bonus speculation has started in earnest. The conundrum is apparent: most of the world is under severe financial stress. However, the China asset management space continues to grow, firms continue to have needs, and high calibre candidates continue to be in demand. Bonus expectations at global firms outside of China have been actively managed throughout the pandemic. We believe employees’ expectations, while hopeful, are realistic. However, the market dynamic in China is different, and it has nothing to do with a rising market or recovery from the pandemic. It is a simple supply versus demand inequality created by a combination of regulatory change and the desire of foreign firms to build a long-term sustainable presence in the world’s largest untapped market. The result is the natural conflict of different circumstances across global HQ and locally in China.
Shanghai has enjoyed an unrivalled dominant position as the WFOE asset management hub in China. Will this continue? The influence of the regulators, the need to form wider distribution partnerships and the increased aggression from the rival local government seem to suggest otherwise. Beijing could be the obvious challenger with a strong existing local asset management industry, the power of the central government and the HQ for numerous potential partners (banks and insurance). However, Shenzhen and the Greater Bay Area could also offer a robust alternative with world-class modern infrastructure, a thriving financial services sector and proximity to Hong Kong as strong draw cards. The message seems to be clear – it is a question of when, not if, this diversification and decentralisation takes place.
WRAP UP & WHAT'S NEXT
As the world struggles to adapt to the new normal of a COVID-19 disrupted workplace, one thing remains clear. The onshore China asset management market will continue to march forward in an unrelenting fashion, and global companies remain focused on being part of this enormous business opportunity.
COVID-19 has impacted human capital and organisational development around the world with the move to remote working, the vastly increased investment in and use of technology, virtual engagements and meetings with internal and external stakeholders. The world’s leading companies are seizing these changes as an opportunity to be best in class and not merely reacting in crisis management mode.
This is evident in the way companies are responding to human capital challenges in China. For structural and regulatory reasons, the China asset management market is expanding and not contracting. Elsewhere around the world, most asset managers are operating under a different set of circumstances. When responding to the needs of a country or division operating differently to the rest of the company, management needs to recognise this and act accordingly.
Some key takeaways from our observation of how the best firms are operating are below:
Strategy – people in China want the strategy to be defined, positive and aspirational. However, if the plan changes, explain why, how and what the benefit will be
Communication – given the potentially remote location of leaders, it is impossible to over-emphasise how important communication is today; it should be constant, consistent and high quality
Execution – company leaders need to follow through on promises, stick to the plans for their staff and make sure the management of their employees’ careers does not get lost along the way
Empathy – we all work with empathetic leaders and those who are not; in the new normal, empathy is highly prized. When lacking, it can be highly detrimental to culture
Since the onset of COVID-19, leaders and their human resources teams are coming into their own, adding significant value, and guiding employees through an uncertain and callous time. The feedback we received is highly optimistic about the impact the HR teams have in this space. A successful build onshore in China needs HR to be the closest business partner to the company’s leaders. Good people are always the key to business success. However, the new normal means this is amplified; first-class talent acquisition and talent retention strategy will either be the bedrock of success in 2021 and beyond or the Achilles’ heel which undermines the business success for years to come.
The market holds vast challenges. However, within these challenges lies huge opportunity. As the China asset management market continues to develop and mature, the human capital opportunity and ability to positively impact business in 2021 will be enormous.
OUR ASSET MANAGEMENT TEAM
Hong Kong Office - Andrew Oliver
Singapore Office - Stanley Teo