In a year when the whole market was down, the asset management companies (AMCs) who outperformed did three things:

• They reduced the sensitivity of their portfolios to the market by increasing their cash holdings.
• They enhanced the resilience of their portfolios by overweighting their allocation to sectors that can ride the trend of rising inflation and interest rates, particularly oil and gas and financials.
• They were able to time the market properly. This means they took a bold call and bought into the market when valuations were at their lowest level, and at a time when other investors and AMCs were leery of buying into it.

In good times, most AMCs want to increase their sensitivity to the market with higher beta in order to capture alpha for their investors.

But in bad times, they need to reduce the market sensitivity of their portfolios with lower beta and protect investors from losses. This was the scenario in 2022 for many AMCs.

The easiest way to reduce market sensitivity of the portfolios is to increase their cash holdings by selling assets. But selling at the right price and at the right time was challenging in the face of highly volatile markets. Nevertheless, many AMCs substantially increased cash holdings to ride out the market downturn.

In addition to beefing up their cash holdings, the more successful AMCs were able to enhance the resilience of their portfolios by overweighting their allocation to sectors that can ride the trend of rising inflation and interest rates, particularly oil and gas and financials. However, not every AMC can do this.

In this aspect, the major AMCs with a full suite of products that cover all sectors have an advantage. Such AMCs would have specific products that focus on the oil and gas as well as the financials sectors, thus allowing them to have the flexibility to overweight their allocation to these sectors and enhance the resilience of their portfolios.

Most AMCs, particularly those with mutual funds, do not have the flexibility to overweight their allocation to oil and gas and financials. Also, with the growing trend towards ESG investing, many AMCs would not allocate to oil and gas.

But, in addition to reducing the market sensitivity and enhancing the resilience of their portfolios, the most successful AMCs in 2022 were also able to time the market correctly. This means they reaped the benefits of taking a bold call by buying into the market when valuations were at their lowest level, seeing their market forecast turn out right, and then selling when the valuations have risen substantially, allowing them to generate outperformance.

China market

As of Q4 2022, there were 191,730 investment products registered with the Asset Management Association of China (AMAC), accounting for 66.74 trillion yuan (US$9.65 trillion). Although the number of products grew by 14% in 2022 from the previous year, total assets under management (AUM) experienced great volatility during the year.

The asset management market in China was in a more complex situation last year. It was affected by the pandemic, fluctuations in the broader economic environment, geopolitical tensions, the 20th Communist Party Congress, changes in the zero-Covid policy, changes in investor confidence, etc.   

As a result, AUM dropped by 2% from 67.87 trillion yuan in Q4 2021 to 66.24 trillion yuan as of Q1 2022, kicking off a bad year. The AUM managed to grow in Q2, but decreased slightly by 0.2% in Q3, and further dived by another 2% in Q4.

It was a particularly challenging year for the mutual fund managers. Newly launched mutual funds recorded a total of 1.49 trillion shares in 2022, down 50% from the previous year. Not only was it harder to launch new products with assets under management (AUM) surpassing 10 billion yuan, but also at least 25 funds failed to attract enough investments to launch products.

Despite all these challenges, China’s asset management industry remains one of the largest in the world and is expected to continue growing in the coming years, with analysts predicting a compound annual growth rate (CAGR) of around 6.5% through 2025.

Much of this growth is expected to come from the country’s expanding middle class, which is driving demand for investment products such as mutual funds, especially money market funds, as well as exchange-traded funds and bank wealth management products. The performance of the asset management market in China may be subject to short-term fluctuations, but the industry's long-term outlook remains positive. Going forward, the asset management sector will continue to be a significant contributor to the country's economic growth.

To view the winners of the Asset Management Company of the Year Awards 2023, please click here.