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Fidelity files for China onshore licence

The US asset manager has applied to China's regulator for a licence to access the country's retail investor market.

Fidelity International submitted its application to the China Securities Regulatory Commission (CSRC) on Monday, according to a statement by the firm.

If the licence is approved, Fidelity’s wholly foreign-owned enterprise (WFOE) will be able to offer investment products to China’s vast retail market, which the Asset Management Association of China (Amac) estimates to be worth RMB 16.64trn ($2.34trn).

“The application for a mutual fund license is an important milestone in our China strategy,” said Daisy Ho, president of China at Fidelity International, in the statement.

The move follows China’s lifting of overseas ownership limits in the mutual fund sector on 1 April, allowing foreign asset managers to create wholly-owned public mutual funds and to take 100% ownership of their joint-ventures (JV) with domestic firms. The CSRC flagged the removal of ownership caps last October as part of several measures to accelerate the opening up of the country’s financial sector.

Blackrock and Neuberger Berman applied for wholly-owned mutual fund licenses the same day that the restrictions were removed, and JP Morgan Asset Management is set to be the first to gain 100% ownership of its mainland venture, China International Fund Management, by buying the 49% stake held by its JV domestic partner Shanghai International Trust.

Unlike many international asset managers, such as Credit Suisse, HSBC, Invesco Morgan Stanley and UBS as well as JP Morgan, Fidelity has never taken the JV route in China. Instead, as a privately-owned firm operating in 25 countries and with AUM of about $479bn, it has preferred full autonomy over all its operations worldwide.

However, Fidelity has been present in mainland China for two decades and employs around 1,300 staff in Beijing, Shanghai and Dalian, including about 25 investment professionals based in Shanghai.

It was among the first group of foreign firms to establish a WFOE in China in 2015, and led the pack as the first to obtain a private fund management (PFM) licence from Amac in 2017,  which allowed it to sell investment products to qualifying rich Chinese individuals and institutional clients. The firm has since launched four onshore funds, three with fixed income mandates and one invested in China equities.

In 2018, it formed a five-year retirement research partnership with Alibaba Group affiliate Ant Financial to provide advice to China Asset Management as it develops target-date funds as part of the country’s so-called “third-pillar” individual retirement savings system.

Fidelity also offers professional onshore investors access to offshore markets through the qualified domestic limited partner (QDLP) scheme, but has yet to distribute an offshore product via the China-Hong Kong Mutual Recognition of Funds scheme.

Brand awareness

In fact, Fidelity seems to have been boosting its presence and profile in China during the past year.

In Z-Ben Advisors’ fifth annual rankings of 25 foreign asset managers in China, Fidelity leaped 10 places to rank sixth, as it “built significant infrastructure in pursuit of a wholly-owned mutual fund licence”, according to the Z-Ben report.

Fidelity was also placed sixth in Broadridge Financial’s China Power Ranking, the biggest climber among the top 10, as it “benefited from a combination of good brand recognition among Chinese fund buyers and the firm’s intention to convert its private fund management licence to a fully-owned retail fund management company under Daisy Ho, who relocated to Shanghai from Hong Kong in January,” according to Yoon Ng, Broadridge’s senior director, Apac insights.

However, Broadridge, a US-based data and analytics firm, warned that foreign fund managers in China still face an uphill struggle.

“Performance will be a major constraint as this is the single biggest factor that affect fund selection and retail investors are used to having double-digit returns in their investment portfolios,” said Ng.

“Brand awareness will also play a part, because despite the prominence of foreign managers on the global stage, they are still not as well recognised as domestic players among fund selectors and retail investors,” she added.

Part of the Mark Allen Group.