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China approves Blackrock wealth management JV

The Chinese regulator has given the go-ahead for Blackrock and Temasek to form a wealth management joint venture (JV) with China Construction Bank (CCB).

The agreement will see the world’s largest asset manager and the Singapore sovereign wealth fund take a majority stake in the wealth management company (WMC) with CCB, one of China’s biggest banks.

Blackrock, which has around $7trn of AUM, applied to China’s banking authority in July to form the venture.

Approval for the deal was announced on the website of the China Banking and Insurance Regulatory Commission (CBIRC) at the weekend.

“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.

However, a source said in December that the WMC will likely be based in Shanghai and intends to develop and offer onshore products to mainland China investors.

The partnership with Temasek and CCB is the latest move by Blackrock to tap into China’s growing private and public funds market, which US consultants McKinsey forecasts will surpass $22trn by 2021.

In January 2018, Blackrock’s wholly foreign-owned enterprise (WFOE) gained a private fund manager (PFM) licence to launch onshore funds to China’s qualified investors — that is, institutions and wealthy individuals

Its WFOE in Shanghai manages three PFM products as well as two products launched under the qualified domestic limited partner scheme that allows foreign fund managers to offer products that invest in offshore investments.

In June 2019, Blackrock’s PFM WFOE next received an investment advisory licence from the Asset Management Association of China, which allows it to advise domestic fund management firms and distributors on specific investment products.

Blackrock accelerated its China expansion through applying to establish a wholly-owned retail (or public) mutual fund business in China on 1 April 2020, the first day allowed by the Chinese authorities.

The public (or retail) market  is currently worth RMB 16.36trn ($2.3trn), according to the Asset Management Association of China (Amac), and Deloitte predicts it will rise to $3.4trn by 2023.

Blackrock still owns 16.5% of Bank of China Investment Management, part of Bank of China.

WMC outreach

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.

Many of China’s banks established WMC subsidiaries in response to regulatory reforms, creating opportunities for western asset managers.

In December 2018, regulators told commercial banks to break implicit guarantees for principal and interest payments on wealth management products (WMP), effectively precluding their wealth management businesses from future bailouts.

The WMP industry has been a foundation of China’s shadow banking system and a major concern of regulators keen to dampen systemic financial risks.

On the other hand, the CBIRC also relaxed the investment criteria of bank wealth management subsidiaries, allowing them to invest directly in stocks, whereas banks were previously forbidden from doing so.

CBIRC first granted approval for the wealth management subsidiaries of the six large state-owned banks — Agricultural Bank of China, Bank of China (BOC), Bank of Communications, CCB, Industrial and Commercial Bank of China and the Postal Saving Bank of China.

Subsequently, JP Morgan Asset Management formed a “strategic partnership” as a “product provider” to CMB Wealth Management, the WMC of China Merchant Bank.

JP Morgan AM plans to invest up to $1bn to take full ownership of its China joint-venture, China International Fund Management, having been the first foreign company to hold a majority stake in a Chinese mutual fund business.

Part of the Mark Allen Group.