3. Technology Vendors
- New customer base to sell into; the QDII funds will be in the need of technologies and business solutions that will enable them to process and manage their orders / trades aimed at the global markets arena.
- Leading by example; any vendors contemplating going into China to sell their wares need to be in it for the long-haul and should ideally be demonstrably tenacious and patient, since the sales cycle can in some cases prove to last many years. So for those organisations who are familiar with long sales cycles, they can take advantage of the hunger for information and being a leader in your sphere of business, demonstrated by these Funds in China.
- Advanced Technologies the order of the day; vendors will find that if they have the most up to date technologies that leverage the latest version of FIX, or employ the latest in algorithm technologies, they will find these QDII Funds only interested in the latest technologies that will help them to succeed with their mission.
What are some of the possible threats?
1. Chinese Funds
- Under estimating the challenges; for those QDII’s who have not yet explored trading in this new market dimension; it probably looks daunting. If the QDII allows inexperience to rule the decisions of what technologies or processes to employ as part of their operation, it would probably prove to be very costly in many ways in the medium term. The key here would be to seek assistance from consultants or consultancy organisations that are not aligned to any particular technology suite, but have a track record of implementing successful operations.
- Analysis Paralysis; the very thought of venturing out into the offshore global markets may seem impossible for a mainland China entity and being able to forestall any commitments to technology decisions is one way of avoiding the inevitable. Thus, the organisation could take an inordinate amount of time tooling up for the operation, in the hope of the problem becoming easier as time goes by. The key here would be to seek assistance from banking / brokerage organisations that are not aligned to any particular technology suite, but have a track record of working successfully with client operations.
- Square peg in a round hole; there is always a tendency for organisations that have a fear of the unknown to try to stay with what they know, essentially remaining in their comfort zone. This may translate into QDII forcing their local Chinese technology vendors into modifying their technology, even though it probably services the domestic market more than adequately, into an offshore global market trading suite. This move would probably prove to be too slow at getting to market and would be prone to falling foul of the same costly or painful mistakes that the offshore vendors endured over the last 20 years. The smart thing would be to have the local vendor co-exist with an offshore cross asset solution provider / vendor who are both specialists in the offshore markets and are seen to be the “best in class” in the market.
2. Offshore Banks and Brokers
- Source of knowledge only; for those banks or brokerages who are keen to tap into the QDII opportunity, there is a price to pay. Competition is steep; there are a lot of suitors who are chasing this finite revenue pot, so the QDII’s are in a fortuitous position of being able to pick and choose. Thus a “cost-of-sale” investment in time, assistance and capability may prove to be quite costly over a protracted period of time and fruitless, simply because the QDIIs are spoilt for choice. In addition to the “cost-of-sale” investment, the key for success here is to create a value proposition that is differentiated from your competitors’ offerings; otherwise you could find yourself being leveraged only as a knowledgebase.
3. Technology Vendors Pilots and more pilots:
For those vendors who are keen to tap into the QDII opportunity, there is a price to pay. Competition is steep, and there are a lot of western companies who are prepared to give away a lot of time and technology by way of doing pilots. Whilst this is a very good way to have one’s technology reviewed in the appropriate forum, it is also fraught with risks. Be sure to structure any pilot with a Broker or Bank as part of the trading process so that a full end to end trade life cycle can be tested. The good thing is that your technology is already FIX enabled and thus the interface into the global markets arena is probably the most trivial element of any pilot.
According to Z-Ben Advisors, there are 6 key focuses in China’s QDII market this year:-
Market Sizing:
It is projected that the total industry Assets under Management (AUM) of Rmb6.9tr (USD1.0tr) by 2014, rising to Rmb15tr (USD2.2tr) or more by 2020. Z-Ben Advisors expects AUM growth to be supported by two additional factors,
- First of which is capital appreciation of the industry’s invested assets, especially equities.
- Second variable underpinning AUM growth is an expansion in both the number of new FMCs entering the marketplace (totalling 77 firms by end-2014) as well as greater regulatory ease in launching new products. QDII funds will rise in size to USD120bn by 2014, accounting for 13% of industry AUM.
More Reform, More Opening Up: Significant long-term support for stock and bond market growth are now in evidence.
Demand Dynamics: Mutual funds will be the key beneficiaries of growth in China’s GDP and incomes over the next ten years.
Product Development: More than 500 new product launches will be required to meet demand by 2014.
QDII: A flood of new quota will transform the QDII program by 2014, with as many as 50 Chinese fund managers competing to offer offshore investing, primarily through equity funds.
Global Ambitions: Hong Kong is rapidly becoming a staging area to launch a global assault by well-funded and ambitious Chinese fund management companies.
The scale of these ambitions is, perhaps, unmatched by any other nation’s fund management companies, and we are forced to the conclusion that Chinese FMCs will soon have both the weight and will to acquire almost any foreign rival that can expand their territorial reach.
A minimum of four of these Chinese FMCs are projected to rank among the ten largest global asset managers by market capitalisation in 2014.
Clearly, the QDII initiative represents a significant opportunity for many organisations, both inside mainland China and offshore.
What does this mean for the FIX Protocol?
