Vanguard joins global firms in China WFOE setup

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Vanguard is the latest firm to launch a wholly foreign-owned enterprise (WFOE), enabling it to carry out various onshore investment services, according to a statement from the firm.

Vanguard joins global firms in China WFOE setup

Vanguard received its investment management (IM) WFOE licence in November last year. An IM WFOE enables a foreign fund manager to raise and run domestic capital in China.

Unlike joint ventures, which could access the retail, institutional and HNW segments, IM WFOEs can only target the private fund industry, which excludes retail investors.

With the newly established entity, the firm plans to offer a number of services onshore such as investment management, investment consulting, client liaising and servicing, marketing, investment research, investor education and business development in China, according to the statement.

The WFOE’s legal representative is Charles Lin, Vanguard’s head of China, and the general manager is Clare Zhou, Vanguard’s head of China institutional business, it added.

“The launch our WFOE is our first step to lowering the cost of investing in China and help Chinese investors reach their investment goals,” Lin said in the statement.

Vanguard will now have to register with the Asset Management Association of China (AMAC) as a private securities fund manager to launch onshore products.

FSA sought more information from Vanguard and the firm did not comment about whether it has plans to register with the AMAC.

“It is too early to discuss our plans our plans at this moment,” the firm said, adding that it aims to work with its clients, regulators and market makers to build and promote its products.

WFOE firms

Fidelity was the first foreign manager to be registered with the AMAC as a private fund management company. It also rolled out its onshore bond fund earlier this month, which is the first fund product launched by a foreign firm in China.

Shanghai-based consultancy firm Z-Ben Advisors does not believe that the private fund industry will be the only route for foreign managers to gain access to China’s mutual fund industry, according to a joint report by the firm and Standard Chartered.

“This is something that regulators will likely have to address as first-mover foreign managers approach the three-year mark in the private fund industry. This is important for passive-focused managers such as Vanguard, which are likely to skip the private fund route and wait for direct access via mutual fund ownership reform,” Z-Ben said in the report.

Besides Vanguard and Fidelity, there are other several asset managers that have an IM WFOE, such as Allianz Global Investors, Neuberger Berman, Vanguard, Aberdeen Asset Management, JP Morgan Asset Management and others. 

Most recently, Invesco was granted an IM WFOE licence in April. The firm plans to base analysts in Shanghai this year.

Vanguard has been serving institutional clients in China, including insurance and banking asset managers, the firm said in the statement. In 2014, it set up a representative office in Beijing to facilitate communication between its institutional clients in China and its Hong Kong office, as well as work with regulators. 

The US firm has brought ETFs to other markets in Asia, including Japan, Singapore and Hong Kong.

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