Foreign managers participating in the domestic retail fund management industry are required to have a joint venture with a local partner, with ownership limits set to 49%.
However, China announced on Friday that the ownership cap will be raised to 51% from 49%, and then limits will be completely removed in three years. Regulators are still drafting the rules.
“This regulatory change will provide huge opportunities for global players who want to enter the country. But it will also be challenging for global asset managers who want to be successful in China,” Charles Lin, Vanguard’s Hong Kong-based country head of China, told International Adviser‘s sister website Fund Selector Asia.
Selling funds in China
Difficulties include distribution and competition.
China’s distribution channels for traditional equity and fixed income funds are dominated by mainland banks, which are commission-driven, according to Lin.
“[The commissions] will create a conflict of interest between investors and the distribution channel,” he said, noting that Vanguard does not pay distribution fees. If Vanguard were to enter China’s retail market, the requirement of paying commission to banks would represent a “huge challenge”, he added.
In addition, only a few large banks dominate in China, added Matthew Phillips, PwC’s Hong Kong-based financial services leader for China and Hong Kong.
The issues not only confront new entrants, but also those that already have an asset management joint venture in China.
Lin said local players believe the fund management business is “a great business”, and thus foreign firms with joint ventures must convince the management of the partner firms to accept a majority ownership.
“I don’t think that most of the local shareholders would give up control in their joint venture,” he said.
UBS, which owns 49% of UBS SDIC Fund Management in China, with the remainder owned by SDIC Taikang Trust, has no comment on the possibility of taking a majority stake, said René Buehlmann, UBS Asset Management’s Hong Kong-based Asia-Pacific head and global head for wholesale client coverage, who spoke at a media briefing in Hong Kong.
“At this stage, we feel comfortable with how we are organised,” he said, adding that besides the joint venture, the firm also has a private fund management (PFM) licence and has quotas under the qualified domestic limited partner (QDLP) scheme.
