After signalling its intention to apply for a fund management company (FMC) licence last year, Vanguard has delayed its application and will focus on its investment advisory joint-venture (JV) with Ant Group.
A new timeline for applying for a licence to launch mutual funds in China has “yet to be determined”, a Vanguard spokeswoman told FSA.
The firm poached Da Cheng Fund Management’s CEO Luo Dengpan last September to manage its China fund management business as it prepared its application to the China Securities Regulatory Commission (CSRC) for an FMC licence.
The Shanghai office employs about 30 people onsite, and Vanguard will continue to maintain a team run by Dengpan to provide support, policy and market research for the JV, according to the spokeswoman.
“Unfortunately, we will have a small number of redundancies among those crew who were hired solely to support a future FMC,” she said.
Vanguard, the world’s second largest asset manager with $6trn of AUM, moved its regional headquarters to Shanghai and closed its Hong Kong and Japan operations last August. Explaining the moves, the firm said it believed it could contribute to the development of China’s public fund market, “similar to the way we helped transform the mutual fund market in the US over the past four decades”, and it was confident about the likely appeal of Vanguard’s “low-cost, individual investor model”.
The decision to delay the FMC application was first reported by the Wall Street Journal on Monday.
Vanguard now sees more potential through developing its investment advisory business, rather than competing in a crowded mutual fund market, where investors prefer actively managed products to the passive funds typically offered by Vanguard.
“The decision recognises that Vanguard can bring more value to investors through the JV rather than by launching funds, in light of the large, existing field of mutual funds; greater demand for purchase of products through intermediaries than a direct channel; and strong investor preference for actively managed funds,” said the spokeswoman.
She said that the move was “strategic”, and in response to questions, stressed that Vanguard has no had problems with China’s regulators over the firm’s exit last year from Chinese institutional and state-related business, or its partnership with Ant Group, the affiliate of Alibaba which was forced by regulators to pull its planned IPO in November 2020.
ADVISORY FOCUS
Vanguard forged the JV with Ant Group in December 2019, and launched its licensed Bangnitou investment advisory service in April 2020. By the end of last year, it had attracted more than 500,000 clients, according to the spokeswoman.
“We’re very pleased with our partnership with Ant Group and the broad adoption of the service. Our JV was among the pilot group to receive an advisory license from the regulators,” she said.
“Over this past year, we have gained valuable insight into the size and scope of the demand among individual Chinese investors for investment advisory services, [so] Vanguard will focus its resources in China on growing its JV advisory services,” said the spokeswoman,
“In line with this strategy, Vanguard will pause its application for a fund management company (FMC) licence,” she said.
Six foreign firms have applied to the CSRC to set up an FMC to offer their own mutual funds to China’s retail investor market, which the Asset Management Association of China estimates to be worth RMB 20.59trn ($3.17trn). They include Alliance Bernstein, Blackrock, Fidelity, Neuberger Berman, Schroders and Van Eck; only Blackrock has received a licence so far.
“We greatly appreciated the opportunity to tender an application for an FMC license and are glad to see China welcoming international global asset managers to participate directly in the retail funds market servicing Chinese investors,” said the Vanguard spokeswoman, adding that the firm remains committed to China as a market in the long-term and is positive about the prospect of its presence and business in the country.
