PFM route
A PFM licence enables foreign firms to distribute onshore products to domestic institutional and high net worth investors, while the QDLP programme allows foreign firms to raise domestic investor capital to invest offshore.
To get a PFM licence, managers first establish an investment management wholly-owned foreign enterprise (IM WFOE) and then apply for the licence from the Asset Management Association of China (AMAC). Once the licence is approved, the firm has six months to launch a product in China.
Vanguard, which does not have a joint venture, has an IM WFOE, but has not applied for a PFM licence, according to Lin. The firm is still evaluating opportunities for its IM WFOE and is hiring more local people on the ground, he said. It now has eight people for its WFOE and is building relationships with current and prospective clients.
Lin also indicated that Vanguard is warm to the idea of taking majority ownership of a mainland asset manager.
“It would provide opportunities for foreign managers like Vanguard to be able to launch a locally- domiciled product in China, but we are still waiting for more clarity on the regulation.”
“Foreign players that have already partnered with the leading banks and insurers have found a significant degree of success and have built very sizable businesses that are profitable,” he said. “But there are relatively few opportunities to do that because there are only a few large banks.”
However, Phillips believes other distribution channels such as direct selling or through fintech companies are viable.
Vanguard’s Lin is less optimistic, saying that most of the fund products available on online financial platforms, such as Lufax and Tencent, are money-market funds.
