After withdrawing two years ago, Vanguard Group Inc., the American asset management behemoth, has decided to shutter its remaining business in China. This move comes despite global competitors embracing the $3.9 trillion fund market, leaving them to abandon a vast opportunity.
Sources familiar with the matter have revealed the Pennsylvania-based firm has informed the Chinese government of its plans to close its Shanghai unit. It is also contemplating withdrawing from a robo-advisory joint venture with Jack Ma-backed Ant Group Co.
The exit will be a total withdrawal from China for the $7.1 trillion giant, which previously held significant potential in the world’s second-largest economy.
In addition, the reversal serves as a cautionary tale for global peers such as BlackRock Inc. and Fidelity International Ltd. Both outfits are still racing to build up local operations as the nation’s recovery and a new pension reform brighten prospects.
Vanguard has confirmed that its Shanghai unit and the joint venture are operating as usual. Representatives from Ant and the joint venture have also confirmed the same, with all three declining to comment further.
The China Securities Regulatory Commission has yet to comment on the matter. However, Caixin previously reported on Vanguard’s plans.
This move follows Vanguard’s surprise decision two years ago to abandon plans for a mutual fund management license in China. Meanwhile, Fidelity and Neuberger Berman Group recently joined BlackRock to launch onshore funds through new wholly-owned units. In contrast, Manulife Financial Corp., JPMorgan Chase & Co., and Morgan Stanley have bought out local partners to gain complete control of existing ventures.
The race for fund advisory is heating up, with more players entering the market, ultimately impacting profitability. For example, according to Bloomberg, Vanguard’s joint venture, which has only offered products from competitors, recorded a loss in 2021. That loss was much higher than its internal forecast after its establishment in 2019. Vanguard owns 49% of the joint venture.
In conclusion, Vanguard’s decision to exit the China market is a significant blow to the industry. The reversal serves as a reminder that even the most prominent players in the field can face challenges in penetrating the complex Chinese market.