The increase reflects the growing bargaining power of local banks with vast branch networks and online sales platforms. While regulators capped distributors’ share of fees at 50% for retail sales in 2020, funds have since typically been paying close to that level for fresh launches, leaving new players vulnerable.
Overall, distributors’ cut of management fees grew to 28% last year from 26% in 2020, according to Z-Ben.
Paying higher fees still has its merits for new entrants like BlackRock, which needs distributors to tout its biggest selling point — being a globally renowned asset manager — to more investors, according to Lu Haiyang, vice president of Xin Hu Wealth Investment Management. BlackRock’s ratio will likely stay high for the near term when the U.S. manager launches new products.
The BlackRock China New Horizon Mixed Securities Investment Fund, which raised 6.7 billion yuan, shrank to about 5 billion yuan as of March 31 amid losses and investor redemptions, according to its first-quarter report. It was down as much 27.6% in late April since inception, before a market rally trimmed the loss to 8.8% as of July 11. That’s still better than the benchmark CSI 300 Index, which lost about 13% over the same period.
Its second fund, which was launched in January and focuses on Hong Kong stocks, lost about 7% during the first quarter and managed about 500 million yuan as of March 31.
Not using distributors is also costly. It takes at least 1 billion yuan in outstanding fund sales for a direct-selling entity to break even, and it’s getting more expensive to attract new clients online, according to Zhou Xiaojie, a marketing director at Shenzhen Dollar Technology, which advises money managers.
That said, aware of the growth prospects, global managers are playing the long game. The mutual fund industry already makes up the largest segment of China’s asset management market, with assets exceeding banks’ wealth management products as of March 31, according to Hwabao Securities.