State Street Global Advisors has become the latest firm approved by China to set up an onshore investment management WFOE structure, which will have a $2m capitalisation, according to a Linkedin post by Peter Alexander, managing director at Shanghai-based consulting firm Z-Ben Advisors.
The firm received the IM WFOE licence earlier this month, June Wong, SSGA’s head of Asia (ex-Japan), told FSA.
“SSGA sees China as a key market for our growth in the region in the coming decades. While the IM WFOE only marks the first step of our growth plan in China, we are looking to capture the business opportunities through a build-out of our team throughout 2019 and beyond,” she said, but did not say whether the firm plans to apply for a private fund management (PFM) licence or a qualified domestic limited partner (QDLP) licence.
A PFM licence allows foreign fund managers to invest in a portfolio of onshore assets and permits the product’s sale to a maximum of 200 domestic qualified investors, which include high net worth individuals and institutions.
A QDLP licence allows foreign managers to raise money domestically to invest in offshore traditional and alternative investments, including overseas equity and bond funds, hedge funds and real estate, within allocated quotas.
Although SSGA is the world’s third largest asset manager, it has only now joined foreign peer firms that have already established a WFOE.
SSGA also appears to be following the strategy of Fidelity and Vanguard, which prefer to have a WFOE structure than be in a joint venture. In total, there are now at least 40 foreign managers that have a WFOE in China.
Out of those 40 WFOEs, there are at least 15 PFM licence holders and 20 QDLP licence holders, with Korea’s Mirae Asset Global Investments being the latest to receive a PFM licence, on top of its QDLP licence that the firm secured in August.
Only a few managers, including Blackrock, UBS Asset Management, AMG and Aberdeen Standard Investments, have employed a “dual-track” strategy, in which firms have both the PFM and QDLP licences, according to a report from China consultant firm Z-Ben.
Source: Z-Ben Advisors
“From a pure ‘addressable asset’ market sizing standpoint, those global managers executing either a dual-track or PFM strategy are in the strongest position to gain AUM, market share and bottom-line results in the long run,” the report said.
Separately, Vanguard and Bridgewater Associates increased the invested capital of their WFOE’s, according to the report. Vanguard’s invested capital was increased to $10.9m from $7.9m, while Bridgewater’s was increased to $17.5m from around $8m.
As foreign fund houses increasingly set up onshore structures in China, several large asset managers still remain on the sidelines. They include T Rowe Price, Capital Group, Northern Trust, Natixis Investment Management and Goldman Sachs Asset Management, according to the report.
However, GSAM officials recently said that having a WFOE structure on the mainland is under consideration.