(ATF) Despite the continuing US-China tensions and Covid-19 pandemic uncertainties, the world’s largest asset manager, BlackRock, is looking to double down on its asset management business in China.
BlackRock’s interest in China’s asset management market mirrors that of many of its global peers. Global managers are eager to tap China assets and BlackRock seems to be doing a fine job so far.
The firm placed third in Broadridge’s latest China Power Ranking of global managers, behind UBS Global Asset Management and JP Morgan Asset Management. Our China Power Ranking is based on six criteria including size of China assets under management, global investment strength, brand perception in China and local operational strength.
Larry Fink factor
BlackRock will continue to put pressure on the top two in the China Power Rankings as it grows its presence on the Mainland. There is one key factor driving this development and you can call it the Larry Fink factor. He has personally articulated BlackRock’s commitment to work with China and is one of a handful of foreign financial leaders that the Chinese government seems to regard highly.
In 2015, when the China stock markets crashed, Fink was invited to China to advise Beijing on how to handle stock market volatility and has nurtured a good long-term relationship with the Chinese authorities over time.
This may have helped BlackRock get the nod in August this year to create the first wholly foreign-owned fund firm in China.
According to the official filings, BlackRock Fund Management (China) was established in Shanghai on 10 September. The new company is headed by Tony Tang, an industry veteran with both domestic and international experience. Tang also worked for four years at the China Securities Regulatory Commission (CSRC), which gives him an edge when dealing with China’s complex regulatory matters.
At around the same time, BlackRock received approval to set up a majority-owned bank wealth management company in partnership with Singapore’s Temasek Holdings and China Construction Bank (CCB). This was the second such approval in China after an Amundi/Bank of China JV.
In another significant move, BlackRock is reportedly talking to Chinese companies, including internet giant Tencent, on how to make its wealth management platform, Aladdin, broadly available in the China market. Securing a partnership that successfully taps online distribution in China would be another feather in the cap.
Strong position to win inbound opportunities
Even though domestic opportunities are the holy grail for global managers, it is just as important for them to maintain a strong foothold in the inbound space (i.e. foreign investors investing in China). We note that BlackRock is in a strong position for its China strategy, not just domestically but also in the latter.
Global interest in China is fast rising as a result of easier access via Stock and Bond Connect as well as the inclusion of China in global/emerging market indices.
Foreign holdings of Chinese stocks and Chinese bonds have both seen a 50% and 27% jump in Assets Under Management (AUM) respectively vis-à-vis a year ago.
The same fervour rings true for funds investing in China. While competition can be stiff with over nearly 400 managers competing for a slice of the global emerging market equities fund pie, BlackRock stood out as being the only manager that ranks in the Top 3 across four categories – Global Emerging Markets (GEM) debt, GEM equities, Chinese equities and Chinese bond.
Another possible alliance with CCB
In the meantime, one area of particular interest for global managers is the Chinese pension sector. Total pension assets in the Mainland are expected to grow to more than RMB45 trillion, or about US$7 trillion, by 2025.
Fink recently affirmed BlackRock’s ambitions to participate in that space according to a report by Ignites Asia, as he hopes to help China build “a world-class retirement system for Chinese workers and savers.”
His comments coincided with CCB Pension Management revealing that it is seeking a foreign partner to buy a 17.65% stake in the firm. CCB Pension Management is the only firm under China’s pension management company pilot and it manages $70 billion in assets across all three pillars of China’s pension industry.
Co-owned by China’s second largest bank and National Council for Social Security Fund (NCSSF - the administrator of the national pension fund), CCB Pension Management is eager to find a partner that is among the global leaders in AUM size, with risk management and asset management capabilities in the pension area. Although Blackrock is in a strong position considering it is setting up a bank wealth management subsidiary JV with CCB and Temasek Holdings, other possible candidates include JP Morgan, State Street and AXA.
It is also important for global managers, especially US-based ones, to note the fine line they have to walk as political pressure mounts with the ongoing US-China spat. They will need to avoid being seen as over-aggressive or ambitious in China.
While the list of Top 10 Global managers from our China Power Ranking has remained constant, we are seeing shifts within the top 10 ranking.
Building a successful brand will be increasingly important as the battle for assets shifts into the retail space. Our latest China retail investor survey reveals that JP Morgan has overtaken UBS to become the most recognised global fund brand in China, which is greatly attributed to the US manager’s well-publicised plans to acquire a 100% stake in its China fund JV.
However, UBS still managed to hold the overall top ranking, largely thanks to the firm’s strong China AUM growth. The total assets of UBS’ offshore China funds grew by 27% over the first half this year and reached a record high of $19.3 billion as of June 2020.
Other notable managers include AXA and Eastspring, both of which have moved higher in the top 10 rankings, mainly benefiting from their improved retail brand perception, as well as their China JV’s robust AUM growth.
As China pushes towards further reforms in its financial markets, more global asset managers are likely to step up their efforts to develop their China presence. Maintaining the status quo will not be enough for one to stay on top.
# Yoon Ng is Senior Director of APAC Insights at Broadridge Financial Solutions
Broadridge Financial Solutions, Inc. (NYSE:BR) is a $4-billion global fintech leader. The China Power Rankings and more such detailed manager analysis is part of the latest iteration of Broadridge’s China Navigator report series.