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Blackrock receives approval for China retail fund firm

Neuberger Berman and Fidelity are still waiting for regulatory approval to establish a wholly-owned mutual fund company.

Blackrock has received approval from the China Securities Regulatory Commission (CSRC) to establish a wholly-owned mutual fund firm, according to a statement from the regulator.

The move comes after the firm filed the application to set up a wholly-owned retail mutual fund unit in the mainland on 1 April, the first day that China officially lifted the investment limitation for foreign fund management firms with a mainland joint venture, allowing 100% ownership.

Other foreign asset managers that have filed the application for the onshore retail license include Neuberger Berman and Fidelity, which are still waiting for regulatory approval, according to CSRC.

Meanwhile, JP Morgan Asset Management is expected to acquire 100% ownership of its mainland venture China International Fund Management (CIFM). However, according to a statement from the Shanghai United Assets and Equity Exchange earlier this month, JP Morgan AM will need to pay RMB 7bn — which industry players find expensive — to buy out the JV.

The initial greenlight from the regulator means that Blackrock would need to set up first its retail mutual fund unit, which include the hiring of senior staff, before it can offer mutual funds to domestic investors, according to the CSRC statement. It noted that the firm would need to complete the set-up within six months after receiving the initial regulatory approval.

After setting-up, Blackrock would need to apply for a public mutual fund licence, which will enable the firm to launch products in China’s RMB 17.69trn ($2.5trn) retail fund market.

China expansion

Even before its wholly-owned retail mutual fund unit, Blackrock has already established several businesses in the mainland.

Just recently, for example, Blackrock and Temasek received regulatory approval to form a wealth management company (WMC) joint venture with China Construction Bank (CCB). Blackrock, which has around $7trn of AUM, applied to China’s banking authority in July to form the venture.

“Blackrock and Temasek together will take a majority stake in the JV. Beyond that we don’t have more to share for now,” a Blackrock spokeswoman told FSA recently.

The WMC venture with Temasek and CCB follows the announcement of 11 measures by China’s Financial Stability Development Committee in July 2019 to encourage overseas participation in the country’s financial markets. Included were the removal of foreign ownership limits for fund management companies in 2020 and allowing foreign control of domestic WMCs.

France-based asset manager Amundi and BOC Wealth Management, the subsidiary of Bank of China, were the first to gain approval to set up a joint-venture under the new wealth management framework. The entity is 55% owned by Amundi and 45% owned by BOC WM, and expects to open for business later this year.

Another business that Blackrock has is its retail fund joint venture firm, Bank of China Investment Management, in which it has a 16.5% stake in the company.

The firm also has two wholly-foreign owned enterprises (WFOEs) in Shanghai, which are Blackrock Investment Management (established in September 2017 with a private fund management (PFM) qualification) and Blackrock Overseas Investment Fund Management (established in August 2015 with a qualified domestic limited partnership (QDLP) licence).

A PFM licence allows foreign managers to offer onshore domestic funds to investors while the QDLP programme allows foreign managers to raise money in China, with assigned quotas, to invest in offshore traditional and alternative investments, including overseas equity and bond funds, hedge funds and property. However, both products can only be offered to qualified domestic investors, such as institutions and high net worth individuals.

Blackrock IM manages three PFM products, while Blackrock Overseas has two QDLP products, according to records from the Asset Management Association of China.

Part of the Mark Allen Group.