Ray Dalio Needs China. Does China Need Ray Dalio?

In the 1980s an obscure, 30-something fund manager traveled to China and met some locals who were hungry to learn about financial markets.

The manager explained to them how the U.S. and other Western countries were transforming into heavy-duty capitalist machines. As it happens, that manager was Ray Dalio — founder of what would eventually become the world’s largest hedge fund firm — and some of his Chinese contacts went on to hold high-ranking jobs within the country’s financial regulator.

Little did Dalio know how much that trip would pay off some 30 years later. On April 1, 2018, Dalio’s Bridgewater Associates opened a version of its gargantuan All Weather risk-parity fund that invests in Chinese securities. While this is intended for international clients, one focused on local clientele will not be far behind, having just received sign-off from the regulator.

For Bob Prince, co-CIO of Bridgewater and a 30-year veteran of the firm, the fund and associated opening of an investment office was the natural next step in its relationship with the country.

“从1993年开始，我们已经长期拥有中国投资者。我们的第一家客户是一个仍然是客户的中国公司，”王子告诉亚博赞助欧冠。“We have built great relationships with some of the country’s largest investors and have had an office there for around eight years. This has been for client service, so this is a really good natural progression for us.”

虽然Dalio的名字引起了注意力，但他的公司只是几个西部基金经理之一，在中国做出了真正的努力。在过去的18个月里，Blackrock，Schroders和伦敦上市的人集团是巩固其对该国承诺的知名公司，因为监管机构改变了长期的规则，禁止他们在没有当地的情况下在陆上投资或贸易证券伙伴。

These managers intend to capitalize on the growing hordes of increasingly wealthy investors — retail and institutional — in the country, as well as to cater to their clients back home who are in desperate need of diversified income streams.

The firms have good reason to want to get in on the ground floor. According to figures cited by Prince, 40 percent of all global money-supply growth last year came from China. The market capitalization of the country’s equities and bonds more than doubled from $8 trillion in 2013 to $20 trillion in 2017. By contrast, in the U.S. the figure grew from $39 trillion to $48 trillion over the same time frame.

随着漫长的公牛在发达的市场上跑来看起来越来越脆弱，并且有活跃的经理未能让客户逃脱被动竞争对手，西方投资者有很多激励在中国尝试。更重要的是，当地竞争不是一个重大威胁。虽然世界第二大经济体拥有一些世界上最大的银行和保险公司，但其基金管理行业仍处于初期期。该部门在北美，欧洲和澳大利亚的情况下，该部门没有促进或需要增长。

精明的西方投资者知道underexploited opportunity when they see one — and they have their sights set on a market that is not saturated with look-a-like fund managers all offering similar products to similar investors, and all at a similar price. Still, local firms may not be complacent for long. Western firms that want to access this huge and promising market will have to square off against firms that have the home-court advantage.

基于上海的Z-Ben顾问的创始人Peter Alexander有助于金融公司进入和在中国设立，但该国拥有一些本土基金管理公司，但许多人在为国际客户资金投放时，许多人将与西方竞争对手竞争。

“The hurdles to jump for putting together a request for proposal for quasi-sovereign entities, such as the largest pension and wealth funds, are too high for many local managers,” says Alexander.

If international companies look set to grab the incoming investor cash, Chinese firms have only themselves to blame, he adds.

“They haven’t invested in the due diligence practices needed, nor often hired fund managers who could actually speak to clients. Some of these local managers could have made significant investment and been able to compete on a level with international companies — but they didn’t,” Alexander says. “Instead, international managers have doubled down and will take the business.”

或许更重要的是,投资者decided to put some money to work in China already know there are risks involved, says Alexander.

“使用不勾选所有合规框的公司，您不会增加更多风险，”他说。“当地经理可能有一个细致的展望和联系人，但没有数量的阿尔法值得投资者采取额外的风险。”

---

Until recently, international managersweren’t allowed to access these markets on their own.

Many large fund managers are already in China, but until 2016 they had to enter the market through a joint venture with a local partner (see tie-ups between BlackRock and Bank of China Co. and J.P. Morgan and Shanghai International Group). The non-Chinese partner in the deal was previously not allowed to own more than a 49 percent stake.

Since 2016, however, the wholly foreign-owned enterprise regime, which was launched by the Chinese government to entice international companies to its shores, has changed the rules of the game. Through the WFOE regime, international fund managers have been able to apply for private fund management licences, which for the first time allow them to invest and trade Chinese securities onshore as stand-alone entities.

While a partnership helped them learn about the fundamentals of the financial markets and the country’s clientele, going it alone gives these companies much more flexibility to launch their own products. Crucially, it also allows them the freedom to market their own brands to 1.4 billion potential new clients.

Z-Ben’s Alexander says the country’s authorities had fund managers firmly in their sights with the WFOE regime. It needed them to help grow, deepen, and professionalize its capital market activity, which lags its superpower peers.

The first fund manager to gain the WFOE status was Fidelity International. The firm, which manages non-U.S. funds for asset management giant Fidelity Investments, has been operating in China for more than 14 years and already runs a small range of funds for domestic investors, along with products for Western investors too.

The company has paid close attention to the market and its investors to find out what works — and what doesn’t.

Active management is key, according to Catherine Yeung, investment director for Fidelity in Hong Kong. Her firm has the largest research team of any fund manager in the region, with people based in both the special administrative region and Shanghai.

“There is little appetite for index funds, as some companies have found out,” agrees Z-Ben’s Alexander. “Investors are more risk tolerant than their Western peers — they want returns that are better than the market.”

Fidelity’s in-depth research into Chinese companies means it immediately discards up to 30 percent of all stocks on due diligence concerns. With others, the fund manager works alongside company directors to improve corporate governance and educate firms about how they might deal with an influx of sophisticated — and amateur — shareholders.

This relatively high number of stocks to avoid is tempting for international active fund managers, who are seeking less efficient markets as a way to generate alpha, which is becoming increasingly elusive in developed markets.

Many active managers’ performance against their relative benchmarks at home in recent years has been less than impressive. In 2016 just 26 percent of active U.S. equity fund managers outperformed their passive rivals, after fees, according to Morningstar. This improved to 43 percent in 2017, but the data provider still said, in its March 2018 Active/Passive Barometer report on U.S. equity funds, that investors “would greatly improve their odds of success” by favoring low-cost funds.

标准化企业governance, similarity in developed markets, and the salvo of quantitative easing go some way to explain the difficulty for active managers trying to outperform.

This is not the case in China.

KPMG中国的战略总监张HowHow张张张先生有积极的经理，他们一直击败市场，因为金融市场并不像他们的效率。

Onshore China equity funds tend to have a higher upside than global managers out of Hong Kong, according to Germaine Share, associate director of manager research at Morningstar, and they have much greater volatility.

Additionally, local Chinese managers are largely benchmark agnostic, Share says, providing a community that would suit an active global player.

“Passive investment does not work in China, apart from in the short term,” says Robert Horrocks, the San Francisco-based chief investment officer of Matthews Asia. His firm has been investing in China for more than two decades. “Only around 30 percent of shares actually create value and return dividends.”

Horrocks says a fundamental approach involving “wearing out shoe leather” has worked for Matthews Asia, whose China Dividend Fund has returned an annualized 11.6 percent since launching in October 2009. By comparison, the MSCI China Index has returned 6.31 percent over the same period.

“中国市场实际上非常透明，”赫尔克斯说。“公司必须定期向证券交易所汇报，并可以要求解释他们的行为 - 为什么他们试图在刚才这样做之后一次再次筹集资金。”

中国的积极管理的关键是探讨每一个号码，不仅要了解目标公司，而是其供应链和市场的供应链和地方。

But if investment options are bountiful and investors are demanding active products, there is a niggling issue with supplying them.

“Regulators say that you need people with a certain amount of experience in key roles,” says Fidelity’s Yeung. “As a first-generation firm, we have them, but others — local and international firms — don’t.”

Retaining top talent is a problem, she says. “Our analysts are always being poached.”

With an army of well-educated, hungry graduates entering the job market each year, there is a decent supply of junior staff, but to replace an experienced fund manager is more taxing.

“Having a local portfolio manager is very useful,” says Yeung. “They know about the society and why people would like a certain thing over another.” They will also understand the policy directions on a macro scale and how they are likely to affect the population, she says.

Zhang says the process of building headcount would be a slog for global firms entering the market: “Historically, not all the necessary talents could be found in China — many have had to move their staff over. But the strategic intention to move is there for many global firms who are taking action.”

Prince says Bridgewater has been staffing its expanding presence with a mix of existing employees and new hires from China and the surrounding region and is still in the process of building it out.

Given the estimated asset growth for a retail market that is hungry for actively managed funds, it might be worth it for firms to make the effort to find the necessary staff.

Z-Ben says retail market assets hit $2 trillion in 2017 and will blow out to $12 trillion by 2028. These figures do not include any potential additional trillions of dollars that would come from a new pension system that is under construction.

The equities pool is deep enough for other international managers to get in, according to Fidelity's Yeung, but it won’t be easy for newcomers.

“If you go in thinking you’ll make a lot of money quickly, you’re going to have a wild ride,” says Matthews Asia’s Horrocks. “You need to use common sense to be successful in the long term.”

随着巨大的崛起in the amount of capital being generated — and cash flow being turned into investable instruments — China’s regulator did not want to take the risk of there being no one to manage it all.

国际公司被悄悄教育，鼓励抓住机会。在过去十年中运作的伙伴关系框架帮助了协议的每一方，了解对方的商业和环境的大量巨大。

Morningstar’s Share has noticed how global firms have begun investing meaningfully into their onshore investment capabilities over the past few years as they have grown more comfortable with the environment.

“这些通常是投资专业人士，他们已经证明了能力和语言技能 - 分析和投资于陆上市场，但同时能够在文化上融入既定的投资哲学，这些公司许多公司已经已经到位地区，“她说。

Bridgewater sees the massive potential and has been impressed with not just the creation and implementation of the regulator’s action plan, but also the speed with which it has been done.

“Policymakers have been very consistent with their actions and intentions,” says Prince. “They consistently said they wanted to open up the markets to foreign managers and investors and they just want to take it at a controlled, managed pace. Some of the steps have been to simplify some of their bureaucracy or regulatory structure.”

KPMG’s Zhang says the regulator has been working toward creating a framework to allow a level playing field for global and local players.

“It is a dominant force and an influential factor in the market,” he says. “They want a regulatory framework that is fair to everyone who wants to be there. They are hoping that companies with lots of different types of approaches will be represented.”

尽管监管机构鼓励和快速增长的市场巨大潜力，但大量的大型基金经理人仍然是加入党。

Z-Ben's Alexander says some firms remain concerned that the regulator will want to exert some sort of control, while some of their employees may be unwilling to stake their career on an expensive move that is yet to be proven.

对于其他人来说，可能会归结为简单的供需动态。尽管是世界上最大的经济体，但最快的增长之一 - 很少有主要投资者对中国有不同的接触。据养老金顾问美世，约有38％的欧洲机构投资者于2017年底举行了一般的新兴市场分配 - 然而，这一增加了平均只有5％的投资组合。亚博赞助欧冠在那里没有多少中国A或H股的空间。

“Many institutional investors invest in China as part of an emerging-market mandate,” says John Belgrove, principal in investment consulting at Aon Hewitt in London. “There is a case to spin out a separate allocation, and that will come in time. Most are focusing on their risk agenda rather than returns now.”

ATP, the $120 billion Danish national pension fund and arguably one of the world’s most sophisticated investors, has barely any exposure to China — and what it does comes through one of its passive products, according to a spokesman.

Others, including the California Public Employees’ Retirement System, invest relatively tiny amounts in Chinese private equity and other alternative funds focused on a specific sector. CalPERS has commitments worth almost $7.5 million in the DT Capital China Growth Fund, according to its website. That’s a drop in the ocean to the $356.6 billion pension.

A major reason for staying away from China has been that it has not been possible to invest there in any meaningful way before now. But with the regulator’s actions to open up financial markets, and index provider MSCI including 230 Chinese A shares in its emerging-markets indexes for the first time in June, that argument will soon fall flat.

布赖德沃特热衷于让投资者改变并希望所有天气基金都是车辆。

“The further away you get from China and Asia, the wider the information gap and the lesser the level of activity,” says Prince.

他说，该公司将通过了解市场持有的可能性的过程来指导其客户。

“This will help them understand the actions and intentions of the policymakers and offer them a portal into Chinese markets,” says Prince. “Some people get hung up on the idiosyncrasies, but what is the same about their market is much more than what is different. The basic cause-effect linkages are the same.”

普林斯认为，在MSCI基准中纳入股份也应该鼓励投资者，因为当他们设定资产配置时，许多经理在这些指数周围定位自己。

In any case, the move by asset managers to set up shop in China will accelerate over the next five to ten years, Prince says, but it has already begun.

And Prince warns Bridgewater’s rivals that they shouldn’t miss the boat. After all, Chinese fund managers will not lag their international peers forever.

“他们有能够环顾四周的优势，看看有什么作用，他们有治理框架来实现这些东西，”王子说。“他们有没有遗产的优势 - 当你没有遗产的惯性时，你没有相同程度的既得利益。”