After abandoning plans for its own mutual fund company in China in 2021, Vanguard aimed to put China’s nascent troubles on the back burner by stepping up its partnership with widely envied local financial group Ant. .
A joint venture between the world’s second-largest asset manager and China’s best-known digital financial business soon has more than one million customers on the mainland, a promising sign of growth prospects in the multi-trillion dollar investment market. Attracted interest and investment.
Fast-forward to 2023 and it’s unclear if Vanguard will have mainland Chinese customers in the future. explained its withdrawal plan.
In a statement, the joint venture said there was no change in cooperation between its shareholders and that business is continuing as normal. China’s Securities Regulatory Commission and the Shanghai government declined to comment, but Ant Group itself declined to comment on “market speculation,” saying its joint venture with Vanguard was operating as normal.
Whether Vanguard exits the market entirely or not, the challenges faced in China by one of America’s best-known investment firms are changing the world’s key assets, from the products they sell to their branding to how they are sold. It highlights the challenges faced by asset management companies. as they rush to expand domestically.
China is still in the early stages of building a private pension system, and access to U.S. companies has increased in recent years, despite deteriorating geopolitical ties between the two countries. Instead, sources said the disruption was largely commercial.
Vanguard’s venture with Ant First installed in 2019, Two years after arriving in China, the US fund owns a 49% stake. It was the first company to be granted a so-called robo-advisor license from the China Securities Regulatory Commission, allowing it to offer a form of automated financial advice.
In the United States, Vanguard has helped pioneer low-cost products that track major indices for decades. The company’s plan in China was to offer investors a similarly cheap, passive exposure to the market.Clients only needed RMB 800 ($116) to set up an account, which was reduced to RMB 100 in July 2021, a few months after Vanguard abandoned plan For its own mutual fund business to focus on joint ventures.
However, two people familiar with the product design say the model works well because of the limited pool of underlying securities in China and minimal access to offshore markets. It is said that it is making it difficult to Its fees did not stand out compared to the fee-based structures employed by other mutual funds in China, one of the people said.
Analysts also said Chinese consumer attitudes are widely associated with a desire for high returns and speculation in the domestic stock market, contradicting the widely successful strategy of passive exposure in more mature financial markets. It suggests that
Liu Meng, an analyst at consulting firm Forrester, said a study showed that 90% of retail investors in China make their own investment decisions rather than relying on passive exposure or third-party advice. pointed out. He added that the development of China’s robo-advisory business lags behind that of the United States.
Sources familiar with the JV’s operations in Shanghai said Vanguard is moving away from plans for a low-cost index fund sold directly to individual clients, especially after the appointment of Tim Buckley as global chief executive in 2018. said he was reluctant to Venture companies were weighed down by the cost of senior management staff sent from the United States, costing the chief investment officer alone over $1 million a year. “For a start-up like ours, it’s an expensive burden,” the person said.
Meanwhile, on the other side of the venture, Ant, which owns China’s Alipay payment app with more than 1 billion users, has failed to promote the venture’s product as much as expected. A wave of regulatory and antitrust pressure from Beijing on China’s top tech company has derailed Ant’s plans for a record-breaking U.S. IPO in 2020, forcing other fund houses to promote similar products. .
Peter Alexander, managing director of Shanghai investment consultancy Z-Ben Advisors, suggests foreign asset managers often rely too heavily on the assumption that local partnerships will successfully distribute their products in China. But he said investors were “totally brand agnostic.”
“China probably has the most open architecture for distribution anywhere in the world. Anyone can put any product on any platform,” he said. “It’s not your problem. Your problem is how you stand out.”
“We have to put something on the market. We have to say that we are performing well or providing excellent customer service,” added Alexander.
Geopolitical tensions have also cast a shadow over foreign companies in China in recent months. In Washington, so far, the focus of US scrutiny has been the semiconductor industry, not financial services. unusually inconspicuous At a recent forum in Beijing.
Even in the absence of geopolitical turmoil, the failure of Vanguard’s approach underscores that in the investment space, US business success does not necessarily translate into the Chinese market.
“If you’re successful on a global scale, there’s a way to bring that DNA to the Chinese market,” says Alexander. “It just changes the way you think about how you do it. No one I can see at this point is really there.”
Additional reports by Brooke Masters from New York and Andy Lin from Hong Kong
