Other global managers planting their flags in China's wealth management space over the past year or so have walked through the second door opened by regulators — taking a controlling stake in a "grandchild" joint venture with those local bank wealth management subsidiaries as opposed to acquiring a direct stake in them.
Paris-based Amundi SA was the first to move, announcing in late 2019 it would take a controlling 55% stake in a joint venture with BOC Wealth Management Co. Ltd., a subsidiary of the country's fourth-largest bank, Beijing-based Bank of China. The venture got off the ground nine months ago.
BlackRock Inc., Schroders PLC and Goldman Sachs Asset Management LP have followed suit over the past year, announcing plans to take majority stakes in joint ventures with, respectively, the wealth management subsidiaries of the country's second-largest bank, China Construction Bank Corp; its seventh-largest, Bank of Communications Ltd., and its biggest bank, Industrial and Commercial Bank of China Ltd.
China's wealth management industry — restructured over the past three years to drag murky shadow-banking offerings with implicit or explicit guarantees into the regulated realm of net asset value products — is currently more than $1 trillion bigger than the higher-margin $2.8 trillion mutual fund business that foreign managers have salivated over for more than two decades now.
The two big retail market segments, meanwhile, answer to different regulators: The China Securities Regulatory Commission oversees mutual funds, while the China Banking and Insurance Regulatory Commission oversees bank wealth management products.
Despite the scale of the opportunity, some analysts see wealth management more as a distraction than a proper focus of foreign managers' business plans now.
Offering "equity or balanced products that are earning you 150 basis points, that's the business you want to be in," as opposed to lower-fee bank savings substitute products earning 20 to 50 basis points, said Peter Alexander, managing director of Shanghai-based financial sector consulting firm Z-Ben Advisors Ltd.
While Mr. Alexander contends that global managers would do well to remain "laser focused" on building out their fund management businesses over time, he conceded the prospect of quicker wealth management gains, fueled by tie-ups with local banks — despite what he called overly optimistic assumptions about distribution benefits — are hypnotizing many foreign managers now.
JPMAM's Mr. Watkins said there's no need to make a binary decision. "The wealth management piece is very complementary to what we're looking to do" with the strategic decision to make CIFM, the firm's fund management company, the wholly owned heart of JPMAM's manufacturing and distribution strategy for China onshore investments — the largest and most significant prize in the broader China opportunity set, he said.
"The wealth management opportunity for us is the opportunity to bring ... products to another segment of domestic Chinese investors. We can do that through this strategic partnership with CMB. We do not need to do that through a joint venture," he said.
CIFM will look to design products with China Merchants Bank and then leverage the bank's distribution power, he said. Additionally, CIFM will have ample opportunities to act as a subadviser for CMB wealth management products, he said.
A JPMAM spokeswoman declined to say how much AUM the two wealth management products JPMAM has provided thus far for CMB Wealth Management's clients have raised. A CMB Wealth Management spokeswoman didn't respond to emailed queries.
For 2020, meanwhile, ahead of JPMAM's decision to acquire a 10% stake in the unit, CMB Wealth Management ended the year with 2.45 trillion yuan ($383 billion) in assets under management and a net profit of 2.5 billion yuan, according to the bank's annual report.
Analysts say it's too soon to say whether a direct stake in a wealth management subsidiary will have big advantages or disadvantages vis-a-vis a "grandchild" joint venture with that subsidiary.
With the new wealth management segment just getting off the ground now and regulatory details yet to be hammered out fully, "it's still very early to conclude which path will be more effective or which type of player will be more successful," Ray Chou, a Shanghai-based partner with consulting firm Oliver Wyman, said in an interview.
Ultimately, the details of the partnerships that foreign managers hammer out with their local bank partners will prove more important than whether the foreign firm takes a direct stake in a wealth management subsidiary or forms a joint venture with such a subsidiary, predicted Yoon Ng, Singapore-based senior director, APAC insights with Broadridge Financial Solutions.
Z-Ben's Mr. Alexander took a dimmer view.
After 20 years working to get to a point where the global community can have 100% ownership, money managers are talking now about getting into joint ventures with subsidiaries of subsidiaries of large state-owned Chinese banks — a topic "that should be making most people run the other way," he said.
"Almost everything that you would like to do through a subsidiary of a subsidiary of a bank for wealth management purposes, you can do by yourself through a fund management platform," Mr. Alexander said. The belief, meanwhile, that such partnerships will provide a distribution windfall marks the continued triumph of hope over experience, he added.
"I would argue that J.P. Morgan did it the right way," effectively saying, "we don't want to be bothered with running some third level joint venture ... we want to team up with CMB ... buy a 10% passive stake and we'll find a way to work with them," Mr. Alexander said.
Still, initial results being reported by Amundi — the global firm that got a jump on the competition in diving into China's wealth management market — suggest interesting potential for the joint venture format.
The latest tally for Amundi BOC Wealth Management shows 37 products launched with combined assets under management of 20.7 billion yuan ($3.2 billion) as of May 31, up sharply from 20 products with combined assets of $1.2 billion just six weeks prior, according to a Hong Kong-based spokeswoman.
