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Blackrock and Neuberger first to apply for onshore licence

Shanghai Lujiazui civic landscape of China national flags.

Blackrock and Neuberger Berman applied for wholly-owned mutual fund licenses on Wednesday and are waiting for approval, according to records from the China Securities Regulatory Commission (CSRC).

On 1 April, China officially lifted the investment limitation for foreign fund management firms with a mainland joint venture, allowing 100% ownership.

“We have been scaling up our onshore presence in China for several years now and applying for our mutual fund license further demonstrates our long-term commitment to building a full service asset management company in China,” Nick Hoar, head of Asia-Pacific at Neuberger Berman, told our sister publication Fund Selector Asia.

“We see China as a significant market opportunity for Neuberger Berman.”

The wholly-owned mutual fund license permits foreign asset managers to access China’s retail investor market.

Previously, foreign asset managers could launch onshore funds via a private fund management (PFM) licence or through the qualified domestic limited partnership (QDLP) programme, but the products could only be sold to professional investors such as institutions and high net worth individuals.

Market challenges

China’s total mutual fund industry reached RMB16.36trn (€2.13trn), with 143 asset managers and 6685 products as of the end of February this year, according to Asset Management Association of China (Amac).

However, there are significant challenges for foreign managers in addressing the retail investor market.

“In order to cut a share from China asset management market, foreign managers would also have to tailor their strategy to the local market, where the fund investors often have high expectations for returns and tend to have a relatively short investment horizon,” Chloe Qu, Morningstar’s Shenzhen-based manager research analyst told FSA.

“Besides, retail fund sales in China requires strong distribution networks, which is also challenging for foreign managers to penetrate.

“Regulatory changes [opening the asset management industry], and the size of the China market indeed offer foreign asset managers incentives to get involved, but it also requires them to devote lots of resources to gain success here.”

Previously, several asset managers including Blackrock, Invesco, Neuberger Berman, Vanguard, Fidelity, Van Eck and Schroders expressed the intention to apply for majority ownership.

JP Morgan Asset Management became the first foreign firm to hold a majority stake in a Chinese mutual fund business.

China fund channels

Unlike many other foreign asset managers like JP Morgan AM and Invesco, Neuberger Berman does not have a joint venture in mainland China.

However, the firm operates a wholly foreign-owned enterprise (WFOE) and a QDLP subsidiary, both in Shanghai, according to a spokeswoman for the firm.

The WFOE was registered with Amac in 2017 now manages six products via its PFM licence.

Having a PFM licence enables foreign entities to develop and sell funds investing in onshore assets to domestic qualified investors, which include institutional and high net worth investors.

The firm runs one QDLP product, the Overseas Equity Investment No 1 Private Fund, which received approval in 2018, according to Amac.

The QDLP programme allows foreign managers to raise money from professional investors in China, within assigned quotas, to invest in offshore assets.

Moreover, the firm obtained an investment advisory qualification from the Amac in March 2019.

The qualification enables WFOEs to advise onshore clients on their investment holdings or portfolio. These clients are institutional investors, including banks and corporations, FSA previously reported.

At the same time, Blackrock’s WFOE in Shanghai manages three PFM products and two QDLP products, according to Amac records.

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