BlackRock targets China’s vast pool of savings with ETFs, ‘quant’ strategies
BlackRock plans to tap the needs of institutional and retail investors in China through a variety of financial products ranging from exchange traded funds to more exotic funds, as part of a push made possible by its new licence to operate an onshore fund management business.
BlackRock, which manages US$6.32 trillion in client assets globally, in January was granted a private fund management licence [PFM] by the Asset Management Association of China.
The licence approvals handed out to a number of foreign fund managers opens the way for BlackRock, along with Invesco, Schroders, Neuberger Berman, and Fidelity, to operate separate, wholly-owned private fund management businesses in competition with domestic Chinese fund managers.
BlackRock’s global head of active equities Mark Wiseman sees tremendous business opportunity in the fund management sector. China’s 8,752 domestic fund managers oversee 2.56 trillion yuan (US$400 billion) in assets for both retail and institutional investors, according to data from the association.
“It is incredibly important to have reliable, high quality investment products for Chinese savers. We believe that global asset managers and institutional investors alike can help bring more discipline to this market, which is still dominated by retail investors,” said Wiseman during the Global China Summit conference in Beijing organised by JPMorgan Chase & Co.
BlackRock also wants to promote its expertise in quantitative investment, he said, referring to the use of big data analytics and “quant” analysis to identify trading opportunities for products that can be offered to qualified retail investors.
BlackRock already offers investors from outside China exposure to mainland equities through its systematic active equities strategy, which makes use of algorithms, machine learning, and artificial intelligence in portfolio management.
Wiseman said ETFs could be offered to clients through private funds, which are restricted to a maximum of 200 qualified investors who must satisfy specific financial assets or average annual income requirements. Funds offered under the PFM licence can only invest in China’s capital markets.
Blackrock’s iShares ETFs currently track the performance of equities, fixed income, commodity and real estate globally. In Asia, its ETFs are predominately backed by equities.
Wiseman said he believes mainland investors can support a much more sophisticated domestic market for ETFs. Some foreign investment managers have already been offering ETFs in China through their joint ventures.
Despite having the ability to manage a wide array of asset classes and complex strategies, foreign asset managers like BlackRock and Neuberger Berman will also face head-on competition from leading e-commerce operators, such as Alibaba and JD.com, which have teamed up with Chinese asset managers to offer wealth management products through their internet finance subsidiaries.
Ant Financial, the internet finance arm of Alibaba, has huge assets under management amounting to 2.2 trillion yuan (US$345 billion), according to a recent report by the Financial Times. Alibaba is owner of the South China Morning Post.
Much of this can be attributed to its flagship money market fund Yu’e Bao - it means “treasure built from idle funds” - which amounts to the world’s largest money market fund.
While foreign asset managers such as BlackRock, or AHL under the Man Group, are known for their ability in offering exotic quant funds and systematic trading, in a market like China, the dominance of online payment network,such as Alipay run by Ant Financial, has proven to be a powerful distribution network that enable local fund managers to more effectively market their products and tap the pool of retail investors’ savings, turning them into their assets under management.