(Yicai) June 1 -- Since China lifted foreign ownership limits on public fund managers over six years ago, nine wholly foreign-owned firms have been set up. But with the exception of the three that were converted from joint ventures and already had scale, the six created under the new rules have grown slowly and still remain relatively small.

JPMorgan Asset Management China had CNY231.9 billion (USD34.3 billion) of assets under management as of March 31, making it the largest of the nine wholly foreign-owned fund managers, according to data from Wind Information. Manulife Investment Management China and Morgan Stanley Investment Management China were next with AUM of CNY114.4 billion and CNY30.5 billion (USD4.5 billion), respectively. Each began as a joint venture and later became wholly foreign-owned through equity transfers.

But they are dwarfed by their Chinese counterparts. JPMorgan AM ranks 37th among China’s 165 public fund houses, while the top 11 Chinese firms manage assets in excess of CNY1 trillion (USD147.8 billion) each.

Of the six newer foreign businesses, only Neuberger Berman Fund Management China and BlackRock Fund Management had AUM in excess of CNY10 billion at the end of the quarter, with CNY14.5 billion and CNY11.0 billion, respectively. The combined assets of the six were only CNY33.6 billion (USD4.97 billion), ranking them about 100 out of 165, if counted as a single entity.

The Chinese and overseas fund markets differ in structure and investor mindset, and concerns that foreign firms may struggle to adapt to the Chinese market environment have long persisted, a senior industry source told Yicai.

Most domestic fund managers have spent decades building out full product lines, gaining deep experience, earning a track record investors recognize, building local sales networks, and learning Chinese investors’ preferences, another source noted.

While most foreign fund firms have extensive overseas investment experience, global market insights, and strengths in portfolio risk management, it remains to be seen whether they can leverage these advantages to build investment capabilities tailored for the Chinese market and cultivate local brand influence, the second insider noted.

Although foreign managers often have stronger overseas investment experience, global market insights, and strengths in portfolio risk management, it remains to be seen whether they can turn that into investment capabilities suited to China and build a meaningful local brand, the second source said.

New wholly foreign-owned mutual funds are also lagging behind Chinese peers in terms of product performance. Of the 61 funds issued by the six new managers, 47 posted year-to-date return of less than 5 percent, with only nine delivering returns above 10 percent, according to Wind data.

The best performer was a Schroders Investment Management China product with a return of 29 percent, and the worst performer was a Fidelity Fund Management China product that was down nearly 12 percent.

The three firms that converted from JVs had 240 products in total, and they did better overall. Eighty-one of their products posted gains above 10 percent, with the best performer, from Manulife Investment Management, up more than 88 percent this year.

By comparison, 15 Chinese fund products secured returns in excess of 90 percent, and the best performer doubled in value.

"Ultimately, performance is the core benchmark for all fund institutions, domestic or foreign," a fund manager based in South China said, adding that firms need to fully localize their investment and research teams to generate excess returns and outperform rivals.

Those that converted from JVs have already localized their management, research, and sales channels and understand how to compete effectively in the Chinese market, according to industry insiders. The newer wholly foreign-owned fund managers still have work to do in that regard.

Editors: Tang Shihua, Futura Costaglione