Fidelity International has received final approval from regulators in China to start selling mutual funds in the world’s second-largest economy, joining other global investment firms that directly manage money for individual Chinese investors.
A Fidelity subsidiary, FIL Fund Management (China), has been granted a permit from the China Securities Regulatory Commission that would allow it to offer yuan-denominated investment products to retail customers, the company said in a statement 9 December.
China scrapped ownership restrictions for foreign financial institutions in 2020. The move, part of a China trade deal signed by then-President Donald Trump, was widely seen as a concession to Wall Street. Prior to it, foreign investment banks, asset managers and card networks had been barred from operating on their own in the world’s most populous nation.
“China is a strategic, long-term priority market for Fidelity International,” the company said, adding that it currently has more than 1,900 employees in the country and offices in three cities.
The Chinese securities regulator’s stamp of approval is the final step of a long process that foreign firms have to go through before they can market and sell funds directly to local individual investors.
Fidelity submitted its application in May 2020, and received preliminary approval in August 2021. Chinese regulators typically need to conduct on-site inspections and approve the appointment of senior executives before granting the final go-ahead for funds to launch.
READ China cautions JPMorgan, Goldman over politically sensitive research
During the application process, Chinese regulators asked for information including details of the firm’s products and the track records of its mutual funds in the past three years, according to a CSRC statement in November 2021.
The government also questioned whether Fidelity’s proposed choices for the board of directors of the local mutual-fund management company were capable enough to perform their duties, as none of them had experience working in mainland China’s fund industry.
In April 2022, the firm appointed Helen Huang as its China managing director. Huang joined from Hwabao WP Fund Management, a joint venture between a state-owned steelmaker and Warburg Pincus.
BlackRock was the first foreign asset manager to start selling mutual funds in China and raised the equivalent of $1bn in its maiden fund in September 2021, about a year and half after it submitted the application.
China’s mutual-fund industry has grown at a rapid pace. There were 155 managers as of the end of June with 26 trillion yuan under management, equivalent to $3.7tn based on current exchange rates, according to data from Morningstar Direct. The industry is also becoming increasingly competitive, as managers have been cutting the fees they charge investors and using unconventional marketing tactics such as live streaming and cultivating star managers to win business.
It can be difficult for new entrants to gain scale. The top 10 asset managers — excluding money-market funds — account for a 43% share of the market, Morningstar Direct data shows.
Beijing appears to have picked up the pace at which it hands out licenses to foreign financial firms recently. In November, both Neuberger Berman and Manulife Investment Management received a green light to sell mutual funds in China.
Neuberger was the second firm after BlackRock to receive the nod to start a mutual fund business from scratch, while Manulife was allowed to take full control of a local joint venture that had been operating for years. Insurer Chubb separately also received approval to take control of its Chinese joint venture in November.
Fidelity International was spun out of Boston-based Fidelity Investments in 1980. The company, now based in London, manages more than $600bn for clients in Asia Pacific, Europe, the Middle East, South America and Canada, according to its website.
Write to Jing Yang at email@example.com
This article was published by The Wall Street Journal, a fellow Dow Jones Group title