Vanguard returns $21 billion in assets to China state funds

Vanguard Group returned about $21 billion in managed assets to government clients in China as part of a global shift to focus on low-cost funds for individual investors, according to people familiar with the matter. BlackRock and Amundi are being considered to manage a portion of the funds returned by Vanguard.

The assets include about $10 billion that Vanguard had managed for each of China's State Administration of Foreign Exchange and the China Investment Corp. sovereign wealth fund, the people said, declining to be identified as the matter is private. More than $1 billion was returned to the national pension fund, they said.

The currency regulator will probably transfer oversight of its money to other managers including BlackRock, while the pension fund is likely to pick Paris-based Amundi to manage some of its accounts, the people said. CIC folded the Vanguard funds into its own index investment platform, they said.

Vanguard, the National Council for Social Security Fund, BlackRock and Amundi declined to comment. CIC and China's currency regulator didn't immediately reply to requests for comment.

Vanguard, the world's second-largest money manager, is overhauling its Asia strategy, pulling out of Hong Kong and Japan to focus on individual investors in faster-growing markets. While China remains key for Vanguard as the nation opens its markets wider, the exit from the institutional business hands an unexpected windfall to competitors as they also step up their forays into the 100 trillion yuan ($15 trillion) asset management market.

Vanguard is trying to move away from managing funds for institutional clients, a business that's more demanding and less profitable, the people said. The sovereign clients' relationship managers were based in Hong Kong, part of an operation at Vanguard that's being dismantled, they said.

Vanguard's plans for China have been tested after its Asia CEO Charles Lin abruptly resigned last year, and as global competitors muscle in on the $2.7 trillion public funds market.

At least 10 senior executives had followed Mr. Lin out the door, including staff in legal affairs, human resources, risk management and sales, the people said. Clare Zhao, who was the general manager of Vanguard's wholly foreign owned enterprise in Shanghai, left to join Amundi, where she's taking over this month as head of its China business, a person said.

While New York-based BlackRock has won regulatory approvals for the first wholly owned foreign mutual fund license and a joint venture with a Chinese bank, Vanguard has yet to file an application for its license to manage money for individual investors. Mr. Lin was one of the main negotiators with Chinese regulators.

Vanguard announced Sept. 22 the appointment of Luo Dengpan as the general manager of a planned mutual fund unit in China. Mr. Luo will be based in Shanghai and report to Asia head Scott Conking.

China is a huge market for money managers, not only because of its vast size and potential for wealth management but also because fees are more lucrative than in the U.S. The nation's retail funds market could grow to $3.4 trillion by 2023, Deloitte has forecast.

Vanguard set up a joint venture with Ant Group in December and has rolled out a new robo-adviser to target the fintech giant's hundreds of millions of users. The venture, still in its infancy, is offering an automated service to capture clients with at least 800 yuan to invest in mutual funds.