2023-03-28 08:14:26 ET
Large international firms like BlackRock ( NYSE: BLK ) and Fidelity International have had a slow start in cracking China's new private pension market and are facing formidable challenges as domestic investment companies have the brand recognition and experience operating in the country, Bloomberg reported.
China started private pension plans last year and domestic banks and fund managers are ensured to win the majority of new business in a market estimated to grow to $1.7T, according to the article.
To start, most foreign money managers didn't qualify to participate in pilot trials in 36 cities, given their small asset bases. Instead banks including China Merchants Bank and Industrial & Commercial Bank of China have to able to win the inflows. To entice customers, the banks are offering a range of incentives such as cash and free ibuprofen to open new accounts.
All 23 of the pilot banks that can open the accounts are Chinese. Under the new plans, clients can contribute up to 12,000 yuan per year in a tax-sheltered plan, similar to IRA plans int he U.S.
The new private pension option is estimated to increase to 12T yuan by 2035, Citic estimates, while UBS Group estimates the market could grow to $25T by 2060.
So far, most international firms' wholly owned businesses have been unable to gain any business in the segment. BlackRock ( BLK ) with ~6B yuan in mutual fund assets, hasn't yet issued any products under the new program even though its wealth management joint venture was allowed because of its experience with a previous trial, Bloomberg reported.
Money managers including Fidelity and Neuberger Berman Group, which obtained approvals for stand-alone businesses last year, are just starting to gather onshore assets to meet the minimum thresholds.
Others, like JPMorgan Chase ( JPM ) and Morgan Stanley ( MS ) only recently received approvals to buy out their local partners in China and build their independent operations.
Another obstacle is that local banks tend to favor their in-house funds to rival producuts, Zhou Yiqin, president of GuanShao Information Consulting Center, told Bloomberg.
But some large international firms are determined to gain a part of the growing market. Fidelity said pensions are in its "DNA" and China is an important part of its focus.
Last year, Chinese ventures of foreign asset managers, including JPMorgan, UBS, and Warburg Pincus were reportedly seeking to expand their retirement products in the world's second largest economy.
See why SA contributor Jean Boivin prefers emerging markets assets as more financial cracks show in developed markets.
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BlackRock, Fidelity face major challenges in China's new private pension market