After a roller-coaster year in China in which Amundi SA still eked out a profit, Europe’s biggest money manager is eying a more stable prize: a slice of the fledging pension market that may one day be worth $25 trillion.
Zhong Xiaofeng, a 27-year veteran of the firm who did his doctorate on China’s reform, says the nation’s asset management industry has gone through a “watershed” moment amid regulatory shifts and foreign firms jumped on the opportunities. Now it’s time to deliver, he said.
“In the short-term, you need to let people see hope and not just pile on investments,” Zhong, 58, said in an interview in Hong Kong. “If you keep telling headquarters ‘long-term, long-term’ they won’t have the patience.”
As chairman of Amundi’s Greater China unit, Zhong is steering the Paris-based firm’s expansion at a critical juncture. A sluggish economy and rising tensions with the US are prompting some Wall Street firms to pare jobs and rethink growth plans for the world’s second-biggest economy.
Amundi remains committed, turning a profit on its joint venture investments with Bank of China Wealth Management after what Zhong called a “challenging” year. Amundi is planning to increase assets to $250 billion in Greater China by 2025, part of a wider goal of managing 500 billion euros ($534 billion) across Asia.
The pension market will be key to that growth, though it can’t be growth at all costs, he said.
“If one expands without looking at costs, there will ultimately be a reckoning,” Zhong said. “Don’t exaggerate the opportunities, but also try to capture them.”
Read more: Amundi Says China Wealth Business Is Rebounding From Setbacks
The Amundi BOC Wealth JV is in talks with banking regulators to join a private pension program that allows people to contribute as much as 12,000 yuan ($1,686) a year in tax-sheltered plans. UBS Group AG estimates that the market could be worth $25 trillion by 2060.
It’s similar to Individual Retirement Accounts (IRAs) in the US that have become a $13 trillion market.
Amundi also has a fund management venture with Agricultural Bank of China Ltd. that’s profitable. That operation is seeking to participate in China’s defined contribution plan overseen by the Ministry of Human Resources and Social Security department, a highly competitive space within the pension industry.
In the long run, Beijing needs to keep driving reform and open the pension sector wider. Savings in the government-led program covering urban employees may run out by 2032 and face a shortfall of more than 7 trillion yuan by 2035, according to Citic Securities Co.
Yet so far, most global asset managers are finding it an uphill battle. US giant BlackRock Inc. still hasn’t issued any products under the new program even though its wealth management joint venture was allowed to join given its experience with a previous trial. Other firms such as Fidelity International and Neuberger Berman Group LLC are also targeting this market.
Read more: BlackRock, Fidelity Lose Out in $1 Trillion China Pension Market
Wall Street’s biggest banks are facing a harsh reality check in China more than three years after the country’s grand financial opening. Their dreams of windfall profits from the $60 trillion market are more elusive than ever, as Goldman Sachs Group Inc. and Morgan Stanley are among banks that are scaling back expansion plans.
“The country is opening up, Covid is over, if you don’t make something happen in the next year, it would be very hard for headquarters to double down their bets,” said Jasper Yip, an Oliver Wyman partner in Hong Kong who advises asset managers. “The question from headquarters has increasingly become ‘we’re in, we got the license, now when do we get results.”
The way Zhong sees it, the ability to weave global standards with local practices is key. It comes down to striking a balance when negotiating with Chinese counterparts on everything from risk to liquidity management.
Read More: Amundi Says China Wealth Business Is Rebounding From Setbacks
Zhong’s upbringing prepped him well for the battles to come.
Bespectacled and tempered, he speaks in a soft tone, underpinned by decisiveness. Hailing from China’s coastal Chiuchow region — hometown of business moguls including Hong Kong tycoon Li Ka-shing — Zhong seized the opportunity to go to university. It took him three attempts to pass the Gao Kao national exam, but eventually enrolled at Sun Yat-sen University to study French and French literature.
Works of Victor Hugo, Guy de Maupassant and Rousseau were all the rage just as China opened up, with the nation soaking up concepts of a market economy. After working as a trainee translator with the foreign ministry, Zhong left for Paris to get a doctorate in political studies and degrees in international relations at the Institut d’Etudes Politiques de Paris.
His career in finance began with Credit Agricole in Paris in 1996. He moved back to China a year later with the company, betting that the region represented the future of growth.
Amundi Switch
After Credit Agricole and Societe Generale SA merged their fund operations about a decade later to form Amundi, Zhong had a choice of whether to stay in banking or join the newly founded asset management business. He opted for money management and eventually became chief executive officer of North Asia in 2012.
Zhong’s rise within the same company is somewhat of an outlier, said Jessie Zhang, managing director of US asset manager TCW. Big corporations often parachute managers from headquarters or hire externally for the industry in this region.
“He understands both cultures, he builds bridges, the reason he’s perfect for the job,” said Zhang, who has known Zhong for at least seven years from working in the same sector.
Read More: China Mulls Mandatory ESG Disclosures for Domestic Public Firms
Today, Amundi has at least 400 people in China, including staff at the joint ventures. The company is looking to hire people in ESG and fintech, selectively.
“You have to keep walking and keep walking,” said Zhong. “But you also have to stop and say ‘am I on the right path?’ it’s just like climbing a mountain.”