China's ecommerce firms are moving into financial services, putting competitive pressure on fund management companies (FMCs).
The research firm cited as examples Alibaba affiliate Ant Financial's reported plan to acquire a stake in Tebon Fund Management and Tencent establishing WeBank, China's first online bank, last year.
"The only viable online opportunity FMCs can access for now remains money market funds, but their attraction is diminishing because yields are falling," the firm said.
Retention will be key
Improving sentiment in the domestic equity market and the recent relaxation of regulations to allow China's mutual funds to invest through the Shanghai-Hong Kong Stock Connect, "might provide the right ingredients for managers to explore new business approaches, and focus more on the business of active management".
However, an obstacle is an acute talent shortage in asset management that threatens to limit opportunities and raise employee turnover, the firm said, and retention of existing professionals will become crucial.
"The establishment of a 'business unit', a satellite business operating within an FMC, is one such innovation that several small FMCs such as China Post & Capital and Zhong Ou Asset Management have been implementing in an attempt to retain the best minds within the firm," said Felix Ng, associate director at the research firm.
"The idea is to provide more autonomy to star managers by allowing them to run all operations within the business unit, including recruitment and determining profit-sharing within the unit," he added.
Mainland China mutual funds now have a collective AUM that exceeds RMB 5 trillion ($810bn), according to a report by AXA Investment Management, citing data from the Asset Management Association of China (AMAC).
"With more capital expected to enter the capital markets from both domestic and offshore sources, FMCs in China will certainly have to build up their management expertise to deal with potential demand.
"Add private funds and brokerages to the fray, and one will get a sense of just how challenging the environment will be when too many firms chase a limited amount of talent," added Yoon Ng, Cerulli's Asia research director.