Chinese banks woo overseas asset managers

Senior executives at the wealth management subsidiaries of four state-owned Chinese banks say their companies are already working with a foreign partner or have expressed an interest in doing so.

The subsidiaries of Bank of China, China Construction Bank, Bank of Communications and Postal Savings Bank of China, are not only taking advantage of a rule change last year — which allows foreign managers to take majority stakes in joint ventures with domestic banks’ wealth management subsidiaries — but are also co-operating with overseas managers on product launches.

Bank of China’s wealth management subsidiary has already formed a wealth management unit with French manager Amundi, which owns a majority of the new entity that is expected to begin operations before the end of the year.

Liu Donghai, chairman of the BoC wealth management subsidiary, said in a recent interview with state news agency Xinhua’s China Securities Journal that it was counting on Amundi’s expertise in asset allocation, IT systems and risk control to provide global clients with investment solutions using the renminbi.

This article was previously published by Ignites Asia, a title owned by the FT Group.

BlackRock applied to China’s banking authority in July to form a foreign majority-owned bank asset management unit with the wealth management subsidiary of China Construction Bank and Singapore’s Temasek.

China Merchant Bank’s wealth management unit launched a mixed-strategy product with JPMorgan Asset Management in June after signing a co-operation memorandum last year.

Tu Hong, chairman of Bank of Communications’ wealth management arm, has set a goal of forming a wealth management entity with a foreign partner, according to an interview with China Securities Journal, and said the foreign partner would take majority control of the new unit.

Wu Yaodong, of PSBC’s wealth management unit, has also indicated that his company is looking for a foreign partner with which to form a joint venture to work on wealth management, product development, advisory services and financial technology.

There was no mention of timescales or potential joint venture partners by either Mr Wu or Mr Tu.

In total, there are 17 domestic banks’ wealth management subsidiaries in operation or about to open for business.

Foreign managers know it’s very hard to operate on their own for an onshore business, particularly in distribution

Yu Qinwen, Chengdu-based researcher for consulting firm PY Standard, said wealth management subsidiaries would favour foreign partners that already have a private fund set-up onshore, or those that have already applied for an onshore mutual fund licence.

Banks’ wealth management units have been focusing on fixed-income strategies, so they would probably be looking for foreign partners with onshore mutual funds strategies to help develop equities strategies as well, she added.

Most of the 1,567 products issued by banks’ wealth management units are fixed-income strategies, data from Chinawealth, a site affiliated with the China Banking and Insurance Regulatory Commission, show.

A joint-venture partnership is only likely to be feasible for the largest global companies as the upfront cost of buying into a new wealth management subsidiary could be prohibitive for smaller foreign managers.

The minimum registered capital for setting up a wealth management subsidiary under a bank is Rmb1bn ($140m), Ms Yu said.

The Chinese Securities and Regulatory Commission issued a draft proposal at the end of last month that, if adopted, would allow a bank wealth management subsidiary to apply for a retail fund management licence for the first time.

This has potentially opened a route for foreign partners in wealth management subsidiaries in China to enter the onshore retail funds industry directly and leverage existing distribution, without having to set up their own entities onshore.

“Foreign managers know it’s very hard to operate on their own for an onshore business, particularly in distribution,” said Liu Shichen, Shanghai-based research head at consultancy Z-Ben Advisors.

But Mr Liu pointed out it was not mentioned explicitly whether the proposed rule changes would apply to new wealth management joint ventures,

He warned that the joint ventures presented risks to the foreign partners because distribution power would remain with the Chinese banks.

Banks’ wealth management subsidiaries could also easily walk away from the joint venture once they absorb the expertise they need from their foreign counterparts, he added.

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