Vanguard Group has abandoned plans this year to establish a fund management company in China .
About six months ago, the firm said it would apply for a license to set up a wholly owned fund management company, which had only become available for foreign money management firms in April. The license would allow Vanguard to manage money for China's fast-growing army of individual investors.
Instead, the Malvern, Pa.-based money manager said Tuesday it will focus on growing the joint venture it launched last year with technology giant Ant Group, helping Chinese individual investors construct investment portfolios tailored to their needs.
"We've observed a tremendous demand for advice as evidenced by incredibly strong adoption of the service," a spokeswoman said.
The joint venture, launched last April, reported 500,000 customers as of Dec. 31.
"We have taken the decision to focus our resources in China on growing the JV advisory service and pause our application for a (fund management company) license," Vanguard said in an emailed statement.
The decision is the latest twist in Vanguard's Asia-Pacific strategy over the past year.
Scott Conking, head of Vanguard Asia, in an October interview confirmed the company was walking away from tens of billions of dollars of institutional separate account mandates Vanguard had pursued over the previous eight years to obtain a toehold in the region.
Vanguard decided to bring its Asia-Pacific business in line with its global focus on individual investors and their advisers, Mr. Conking explained.
With the continued opening of China's market, the mainland's individual investor segment represented the firm's biggest opportunity to have a "positive impact on the way the world invests," he added at the time.
Less than six months later, the opportunities in China for a firm with a huge passive business sold directly to investors appears to be less compelling — at least for the near term. "Our decision recognizes that at this time, Vanguard can bring more value to more investors through the JV rather than by launching funds," the spokeswoman said.
The hurdles facing a Vanguard fund business now in China include "the large, existing field of mutual funds; greater demand for purchase of products through intermediaries than a direct channel; and strong investor preference for actively managed funds," she said.
Whether Vanguard will dust off its plan to seek a fund management company license over the mid-to-long term "is to be determined," the spokeswoman said.
For now, Dengpan Luo, the money management veteran Vanguard hired last year to oversee its planned fund management company business, will continue to head the firm's wholly foreign owned enterprise in Shanghai, the spokeswoman said.
The wholly foreign owned enterprise has a threefold mandate: to provide support for the firm's JV with Ant Group, to conduct policy research, and to continue to evaluate business opportunities and partnerships in China, she said.
Meanwhile, Vanguard's joint venture partner, Ant Group, is itself in the middle of a period of intense regulatory scrutiny that could ultimately result in changes to the contours of its business operations.
