Morgan Stanley approved to take full control of mainland joint venture as China further opens its US$4 trillion asset management market

Regulator allowed Morgan Stanley Investment Management increasing its stake in Morgan Stanley Huaxin Funds from 49 per cent to 100 per cent
A string of global asset managers including have applied to set up fully-owned mutual fund units in China after foreign ownership restrictions were scrapped

Banking & finance

Enoch Yiu

Published: 1:19pm, 5 Feb 2023

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The China Securities Regulatory Commission (CSRC) has approved Morgan Stanley to take full control in its mainland Chinese mutual fund unit in the latest move by a country opening its capital market to give international players greater access to its US$3.9 trillion asset management market.

The regulator said it has “no objection” to Morgan Stanley Investment Management increasing its stake in Morgan Stanley Huaxin Funds from 49 per cent to 100 per cent, according to an announcement on the CSRC website on Friday night. Neither regulator nor Morgan Stanley disclosed the price paid to the local partners.

Headquartered in Shenzhen, Morgan Stanley Huaxin Funds became a joint venture in June 2008. It provides diversified investment management services to retail and institutional investors, according to Morgan Stanley.

“Wholly owning our China mutual funds business will allow us to more fully serve this dynamic asset and wealth management market and adds a significant pillar of growth to our global investment management franchise,” said Dan Simkowitz, head of investment management at Morgan Stanley in a statement.

The Chinese mutual fund market has grown substantially in recent years, with assets reaching a record high of 27.3 trillion yuan (USD3.9 trillion) as of August 2022, according to rating agency Fitch.

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There are around 80,000 ultra high-net-worth families – defined as having more than US$30 million in investible assets – in China, of which more than 20 per cent live in the Greater Bay Area, according to the Hong Kong government.

Morgan Stanley is one of a string of global asset managers including JPMorgan, Fidelity, Manulife and Neuberger Berman that have applied to set up fully-owned mutual fund units in China after regulators scrapped foreign ownership restrictions in the industry in April 2020.

A surge in coronavirus infections has hampered an approval process that the CSRC only started to speed up in November as China’s stringent containment policies were relaxed. The country reopened its border in January as it abandoned its zero-Covid policies, paving the way for business to get back to normal.

In November, the CSRC gave Manulife Investment Management permission to take full control of its mainland joint venture by acquiring the 51 per cent of the shares in Manulife TEDA Fund Management owned by its partner, marking the first approval for a foreign firm to convert its joint venture into a fully-owned unit.

Two weeks ago the watchdog granted approval for JPMorgan to buy a 49 per cent stake in China International Fund Management (CIFM) from Shanghai International Trust, allowing it to take full ownership of the mainland fund company.

Between November until January the regulator also gave the go-ahead for Schroders, Fidelity International and Neuberger Berman Group to set up wholly owned new fund units.

Gokul Laroia, CEO for Asia at Morgan Stanley, said the company has been expanding in China for almost three decades, and taking a full ownership of the mainland fund units is an “important strategic milestone” for it to develop integrated services for clients.

“With high levels of wealth creation, growing demand for financial advice, and with the launch of a private pension scheme, we see long-term opportunities in China’s asset management industry,” Laroia said.