An investment managment WFOE allows the firm to launch domestic “private securities investment products”, or non-retail focused funds and solicit investment from onshore institutional or high net worth investors. It effectively separates Vanguard’s onshore and offshore businesses.
“We see this as the first step of our mission to lower the cost of investing in China and help millions of local investors reach their goals,” a spokeswoman said in an email reply to FSA.
“With the WFOE establishment, we will be able to bring our strong investment advisory capabilities to investors in the country, where our Hong Kong office has for years been serving institutional clients, including insurance, banking and other financial services organizations,” she noted.
The Shanghai arm can carry out business activities of investment management, investment consulting, client liaising and servicing, marketing, investment research, investor education and business development in the mainland. Vanguard now has a representative office in Beijing.
Z-Ben Advisors, a consultant, noted Vanguard is the first passive manager to set up a WFOE, which will hopefully “help to grow the nascent onshore ETF business”.
Charles Lin, Vanguard’s head of China and also the WFOE’s legal representative, earlier said that some onshore QDII funds – onshore funds that invest in overseas markets using designated quota under the Qualified Domestic Institutional Investor scheme – already invest in US-listed Vanguard ETFs as underlying assets.
Last month, Lin’s role changed to head of China (from head of Greater China) in order to focus on the build-out in the mainland.
But like Vanguard’s predecessors such as Aberdeen, Fidelity and Bridgewater Associates, or JP Morgan, which secured China’s first asset management WFOE in September, the firm has to register with the Asset Management Association of China before starting operations.
It took Robeco, which was granted an advisory WFOE, about a year to complete the operational setup to house its research team and three sales staff in the Shanghai office.
During the “UK-China 8th Economic and Financial Dialogue” last week, a statement by the Chinese government said the authorities will support Aberdeen for the registration, while agreeing to “gradually raise the limit of foreign ownership of domestic mutual fund companies.”
