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Money Management

Fidelity’s China deal shows firm in for long haul

Target-date accord puts giant on a growth track

Fidelity’s Jackson Lee

Fidelity International announced its first steps in August to establish itself as a player in an individual retirement account, target-date-fund market just getting off the ground in mainland China.

Those initial moves — a five-year retirement research partnership with Alibaba Group affiliate Ant Financial and a tie-up to provide glidepath advice to local fund management heavyweight China Asset Management Co. — could boost Fidelity's profile in China at a moment when regulators are positioning target-date funds to play a central role in a third-pillar individual retirement savings system being put in place. The new system will complement the country's government-managed pension pools and corporate "enterprise annuity" savings plans.

Fidelity's moves with Ant Financial and ChinaAMC might seem like "small building blocks" when measured against Fidelity's ambitions to ultimately achieve "a sizable presence" in that new market but they are significant nonetheless from a longer-term perspective, said Jackson Lee, Fidelity's Shanghai-based head of China, in an Aug. 20 interview.

Progress toward Fidelity's goal of becoming a significant player in China's market will be made "bit by bit and building block by building block," he said.

Mr. Lee conceded his firm's agreement to effectively provide consulting services for ChinaAMC's target-date fund efforts carries a degree of symbolic importance for a firm that, intent on maintaining control over its operations, declined to join the wave of big foreign money managers accepting minority partner status in joint ventures over the decade or more through 2015 when that was their sole option to manage money locally.

Reforms open door

Fidelity jumped in three years ago when reforms opened the door for foreign managers to establish wholly owned operations permitted to manage money for institutional and high-net-worth investors.

In May 2017, Fidelity's wholly owned foreign entity became the first to launch a strategy for those local qualified investors, the starting gun of a three-year period after which the firm can seek regulatory approval to manage local funds — including target-date funds — for retail investors as well.

Executives with competing foreign managers, who declined to be named, said Fidelity is playing the long game in China, bolstering its brand in the eyes of regulators and potential clients alike in a way that could both pay off for the firm and be useful for the development of the broader target-date fund market as well.

One executive in the region eyeing the mainland's third-pillar market said if the pattern of past efforts by Chinese regulators to develop new markets holds, in three or four years they could award one or two leading foreign firms licenses to compete in the target-date fund market.

When that time comes, the groundwork Fidelity is laying now to establish itself as "the foreign experts in pensions (should prove) a valuable bit of real estate" to have, the executive said.

While declining to comment on such speculation, Mr. Lee said Fidelity's status as a private company leaves it well positioned to methodically pursue a market expected to move beyond an initial test launch in recent months — confined to three metropolitan areas and limited to life insurance-affiliated managers — to the broader universe of fund management companies over the coming year.

Mr. Lee declined to say how quickly Fidelity believes China's third-pillar market could grow.

Ivan Shi, the head of research with Z-Ben Advisors, a Shanghai-based financial industry consulting firm, said his firm expects the provision of increasingly attractive tax incentives to power the growth of target-date funds to 19 trillion renminbi ($2.8 trillion) by 2027.

"Being private allows us to take a very long-term view," Mr. Lee said. "Of course we have the ambition to have a bigger business in China ... but at least at this particular point in time, we feel that investor education is the most important and relevant thing to do."

Focus on millennials

Competitors said it's likely ChinaAMC was eager to partner with Fidelity as much for its expertise in areas such as strategies for marketing target-date funds and the technical infrastructure required for the product as for its glidepath advice.

Mr. Lee said Fidelity is investing "a lot of time and resources" now to communicate with potential third-pillar target-date fund clients online, particularly with millennials. The first fruit of the firm's research relationship with Ant Financial, an online survey announced Aug. 14 that elicited more than 28,000 responses, showed less than half of millennials having started saving for retirement.

He said Fidelity's Ant Financial account will offer an expanding array of content, "ranging from 'pensions 101,' to subjects that are more complex and sophisticated," all to help millennials, as well as the broader public, calculate and appreciate the amount of savings they'll need for a comfortable retirement.

Mr. Lee declined to provide any monetary details of his firm's consulting relationship with ChinaAMC.

But the Fidelity executive said the ties with ChinaAMC will have a number of payoffs, giving the firm a good vantage point to learn about the local market while "establishing the Fidelity brand as a target-date fund expert in China."