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Vanguard: opting not to go it alone in China

Vanguard has called time on plans to sell funds directly in China. Instead, the $7.2tn asset manager is relying on its joint venture with hard-pressed fintech platform Ant Financial for any exposure to the nation’s market.

That looks doubly ill-advised. China’s mutual fund market, with Rmb20.1tn ($3tn) of assets under management, may not be for the faint-hearted. But Vanguard, as a diligent money manager, should be well aware of the multiple obstacles when it announced plans to enter a year ago. These include paid-for distribution, lack of direct sales and investors’ appetite for actively managed funds, which chafe with Vanguard’s passive preferences. 

Asset management is also fiercely competitive: more than 7,000 funds jostle for attention, according to industry consultancy Z-Ben. Some houses will launch a couple of funds in the space of a week to catch a passing fad. But that testifies to the market’s size and growth, which will only increase further as retirement planning — in its infancy — takes off.

That explains why Vanguard’s rivals, including Fidelity, AllianceBernstein and Schroders, plan to set up shop. Beijing gave foreign institutions the go-ahead to go it alone last April. BlackRock, at the head of the queue, has already secured approval.

Perhaps Vanguard simply lacks the stomach for the inevitable trials and tribulations along the way. But that makes its reliance on Ant Financial still more curious. 

The Alibaba affiliate had to pull its own $37bn initial public offering at the eleventh hour late last year at the behest of regulators. It has since been in talks with Beijing to restructure its online empire on payments, loans, insurance and fund management. The latter division has already witnessed a clampdown on its supersized money market fund, Yu’E Bao, in 2017. 

Vanguard essentially advises on a clutch of portfolios, rather than its own funds, in this joint venture. That may place it too far down the food chain to attract unwelcome attention. But as a strategy in a market that has doubled in size in four years, it is piecemeal.

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