Why the Onshore China Market is Crucial for BlackRock’s Asian Dream

Posted on 11/12/2019

According to the 2019 Knight Frank Wealth Report, Asian countries are predicted to see the fastest growth in ultra-high net worth individuals. Of the 59 countries and territories in Knight Frank’s forecasts, 8 of the top 10 countries by future growth are in Asia. BlackRock’s Chief Executive Larry Fink has spoken frequently of his desire to ramp up his firm’s business in Asia. Within the region, China is a strategic priority for the asset management behemoth with Fink underlining that desire in his annual letter to shareholders earlier in 2019. And despite the well reported slowdown in the Chinese economy, there is still substantial onshore wealth to be professionally managed.

Using the platform he said, “In China, which is one of the largest future growth opportunities for BlackRock, we are focused on building an onshore presence. Asia is expected to drive 50% of the organic assets under management (AUM) growth in the asset management industry over the next five years, largely driven by China, where there is increasing demand for more diversified and long-term investment solutions. Our goal is to become one of the country’s leading global asset managers.”

Set against the long running backdrop of the U.S.-Sino trade conflict the task might not be so straightforward, but BlackRock appears to be making decent progress. Fortuitously China is in the process of opening its financial markets, gradually calibrating the conditions and parameters that allow foreign institutions to set up operations in the country where personal and institutional wealth is growing at a steady rate. BlackRock, like many of its U.S. peers, wants to have a majority-controlled asset management business in China as soon as it is achievable and is working towards that end.

To expedite Fink’s Asian ambitions, in February, BlackRock appointed a new head for its operations in the Asia Pacific region. Geraldine Buckingham was plucked from her global corporate strategy role in New York and relocated to Hong Kong to take on the challenge. Buckingham was also handed significant autonomy underlining the regions importance.

A few months later in July 2019, BlackRock then named Tang Xiaodong, an investment and regulatory veteran, to lead its China business unit. Tang’s mandate is to manage the firm’s long-term business strategy in China, in the newly created position, he reports directly to Buckingham.

Still Small in Asia

While BlackRock can boast US$ 6.84 trillion assets under management (AUM) globally as of the end of August 2019, the asset manager only has US$ 428.9 billion in assets under management for the Asia-Pacific client region or about 7% of its global AUM. Although the new team in Asia is still in its early stages, it is progressing on the long-term market penetration goals especially where China is concerned.

In June, BlackRock’s wholly foreign-owned enterprise (WFOE) in Shanghai, BlackRock Investment Management (Shanghai) Co., Ltd., successfully completed the registration of its onshore investment advisory service in China with the Asset Management Association of China (AMAC). BlackRock Investment Management (Shanghai) Co., Ltd. was first registered with AMAC as a Private Fund Management (PFM) company in December 2017, this was followed by the launch of its first onshore equity fund in June 2018. The PFM registration in China allows asset managers to create and distribute investment products to qualified Chinese investors.

Blackrock is also one of the few foreign firms to undertake the twin onshore strategy, in which it has both a PFM and a qualified domestic limited partnership (QDLP) license. Under its QDLP business, the firm has launched two products. The QDLP license permits foreign managers to raise money domestically to invest in offshore traditional and alternative investments, including overseas equity and bond funds, hedge funds and real estate, within its allocated quotas.

Direct Investments

The firm has also invested directly into the potential of China’s burgeoning middle class. In April a private equity fund managed by BlackRock invested $125 million into homegrown coffeehouse chain Luckin Coffee. The ambitious Xiamen-based coffee company has a high-growth strategy to open 200 to 300 outlets a month and eventually overtake Starbucks which has more than 3,300 sites in China.

Tech Business Deals in China

BlackRock is also said to have held preliminary discussions with Chinese internet giant Tencent Holdings Ltd., to explore ways to make its tools for investment portfolios available in the onshore the Chinese market. Tencent perceives wealth management in China as a key driver for revenue growth. In 2019, Tencent’s wealth management vehicle Licaitong has witnessed its assets rise to 500 billion RMB, with its user count exceeding 150 million. Licaitong trails Ant Financial’s Yu’e Bao, which is managed by Tianhong Asset Management. Tianhong Asset Management is 51% controlled by Ant Financial, an affiliate of Alibaba Group.

The pair have allegedly discussed jointly working on a financial software system similar to BlackRock’s Aladdin business, which helps clients manage risk in their portfolios. BlackRock is going big into expanding its tech subscription business, acquiring French software provider eFront for its emerging arsenal of financial tools.

Additional access to China’s capital markets for BlackRock includes its participation in the country’s Stock Connect and Bond Connect programs. However progress has not been entirely smooth, the asset manager’s Asia Media Forum originally planned for September in Hong Kong was forced to reschedule to February 2020, due to the ongoing protests in the mega financial hub. Time and financial results will grade BlackRock’s Asis report card.

Keywords: BlackRock Inc., Tencent Holdings Limited.

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