BlackRock Inc. over the past month has secured the licenses it needs to provide "comprehensive" service to domestic investors in China, said Susan Chan, the firm's Hong Kong-based head of Asia.
Covering the entire spectrum of clients in China requires two licenses, Ms. Chan explained in a recent interview.
The first is a fund management company license for business along the lines of "your traditional asset manager," which BlackRock secured on June 11, she said. The second is a wealth management company license providing access to China's $4 trillion bank retail client channel, which the company and two joint venture partners garnered a month ago.
The need for that second license emerged from a 2019 restructuring of what had been a fast-growing, lightly regulated shadow banking sector in China, offering bank retail clients alternatives to low-yielding savings deposits, often with implicit or explicit principal protection guarantees.
Banks were directed to set up new asset management subsidiaries — overseen by the China Banking and Insurance Regulatory Commission — to manage those products. Foreign money managers, meanwhile, were encouraged at the start of 2020 to participate by taking either a direct stake in a bank wealth management subsidiary or a controlling stake in a joint venture with one.
Ms. Chan said her team felt a controlling stake in a joint venture with a bank's wealth management subsidiary offered better chances of success than a direct minority stake in a subsidiary.
China is one of the most compelling investment stories globally and "we felt that the time was now to really take a step and get our entities established and we felt that it was important that we did in a majority way," Ms. Chan said.
On May 12, the China Banking and Insurance Regulatory Commission approved the launch of BlackRock CCB Wealth Management Co. Ltd. — owned 50.1% by BlackRock, 40% by Beijing-based China Construction Bank Corp. and 9.9% by Singapore's Temasek Group.
"We are turning the lights on as we speak," Ms. Chan said, making BlackRock CCB only the second wealth management joint venture to get off the ground.
Amundi BOC Wealth Management Co. Ltd. — a joint venture between Paris-based Amundi SA and Bank of China's wealth management subsidiary — began operations last October and has reported some promising early results. An Amundi spokeswoman said the joint venture had launched 37 products with combined assets under management of 20.7 billion yuan ($3.2 billion) as of May 31, up from 20 products and $1.2 billion over just a six-week period.
Two other foreign managers — Schroders PLC and Goldman Sachs Asset Management LP — are awaiting final approval to take majority stakes in joint ventures with the wealth management subsidiaries, respectively, of Bank of Communications Ltd. and Industrial and Commercial Bank of China Ltd.
Some analysts warn that the structure of those joint ventures with subsidiaries of major government-owned banks could end up exposing foreign managers to more risk than reward.
"You may have equity ownership that's in excess of 50% but that's not the same thing as saying you control the platform," said Peter Alexander, managing director and founder of Shanghai-based Chinese financial sector consulting firm Z-Ben Advisors Ltd. Meanwhile, having legal responsibility for the joint venture will elevate the importance of deeply understanding every financial asset that finds its way into the joint venture's products, he added.
Ms. Chan said making such joint ventures work will depend on the relationships forged between foreign managers and their Chinese bank partners, and in that regard the ownership structure of BlackRock CCB provides a conducive backdrop.
It was critical for BlackRock to find a partner with deep knowledge of local markets, a captive client base and experience working with international players "like ourselves," she said. China Construction Bank — the country's second biggest bank — stood out on all fronts, she added.
"The key to success is the partnership — ensuring that BlackRock brings its expertise, China Construction Bank brings its expertise and then we marry the two to grow a very strong wealth management firm on the back of both entities domestically," she said.
Ms. Chan said it might have been possible to do business with a minority stake in a bank's wealth management subsidiary but having a controlling stake in a joint venture with a subsidiary should prove more conducive to getting the most out of the partnership.
"We really wanted to make sure that we had as close to an equal interest in this joint venture as possible," she said.
Meanwhile, a new wave of joint ventures in China's wealth management space could leave foreign managers facing the need to build two manufacturing hubs on the mainland rather than one, a prospect some analysts say could prove acceptable, given the scale of the opportunities China's market looks set to offer over time.
"Foreign managers with sufficient resources will be willing to build two entities (on the) mainland to capture different product opportunities," said Ye Kangting, Singapore-based senior analyst with Cerulli Associates.
Ms. Chan said BlackRock's wealth management joint venture will have its own manufacturing capabilities even as — against the backdrop of an open architecture approach to managing products — it will be able avail itself of the capabilities of BlackRock's fund management company or other managers' capabilities as needed.
