BlackRock faces key test in $15trn China asset market

Bloomberg

BlackRock Inc is gearing up for the first test of Chinese investor appetite for its own mutual fund products, more than 15 years after entering the world’s most promising wealth market.
The company’s new China unit is launching its debut product on August 30, just two months after winning regulatory approval to become the nation’s first wholly foreign-owned mutual fund firm. In addition, its wealth management joint venture with China Construction Bank Corp and Singapore’s Temasek said it’s offering a maiden quant product September 1.
The world’s largest money manager is leading a global foray into China’s 100 trillion yuan ($15.4 trillion) asset management industry after regulators eased curbs on foreign control last year. It faces a challenge appealing to yield-hungry Chinese retail investors in a crowded market that’s dominated by local firms, even as surging demand provides a promising entry point.
“Fund launches are rising steadily and have stayed at high levels” in recent months, said Sun Guiping, an analyst at Shanghai Securities Co. “BlackRock’s first fund is coming right in time to catch a big wave of launches in the second half of the year.”
New mutual funds raised more than 2 trillion yuan this year through August 18, already the second-highest annual amount ever, only trailing last year’s record 3.1 trillion yuan. The total includes 19 products that netted more than 10 billion yuan in their initial launch.
“BlackRock is well-positioned to introduce a series of mutual fund products and help more Chinese investors improve their financial well-being through its global investment platform, well-informed local market insights and advanced risk management expertise,” the US firm’s China head Tony Tang said in a statement on
August 20.
BlackRock has been issuing mutual fund products with Bank of China Investment Management, which it has held a stake in since 2006. The company also tested the waters a few years ago with a private securities fund business, which ceased operations after it won the mutual fund license as
required under Chinese rules.
The BlackRock China New Horizon Mixed Securities Investment Fund will be managed by Alex Tang, a 16-year veteran of investing in China’s A share markets, and Shan Xiuli.
It will focus on five growth areas including new energy, retirement and digital transformation, according to the company.
The product will be distributed by three Chinese lenders, led by China Construction Bank, along with seven brokerages including Citic Securities Co., as part of a marketing strategy that appears appropriate to market experts.
“The lineup is quite strong,” said Lu Haiyang, vice president of Xin Hu Wealth Investment Management Co., a wealth firm that also distributes funds. The mixed fund also “better fits the current market environment” than other product types, Lu added.
Internet platforms, which have been grabbing a growing share in fund distribution from traditional channels partly thanks to lower fees, are absent from the list. That might not matter because the new fund’s fee level is already among the lowest in the market as banks cut charges to win back clients, Lu said.
The wealth venture’s first offering will be an equities product using an existing BlackRock quant strategy, which had returned an annualized 19.3% since inception in 2012, according to a statement. The model tracks factors including fundamentals and investor sentiment, it said.
Still, while global asset managers’ investment strategies have long been closely examined by local investors for signs of foreign capital flows, their onshore funds will have to build a track record to gain relevance, Shanghai Securities’ Sun said.
“Whether BlackRock funds can come up with good investment performance still needs the test of time,” he said. “If they do outperform, market attention on them could rise.”