Vanguard venture with Ant Financial lures 200,000 Chinese clients

Vanguard’s joint venture in China with Ant Financial has acquired 200,000 clients in the first 100 days since the launch of an investment advisory partnership by the world’s second-largest asset manager and the technology affiliate of the ecommerce group Alibaba.

Pennsylvania-based Vanguard has built an army of more than 30m clients worldwide, which it plans to multiply by offering low-cost financial advice to the 900m users of Ant’s technology platform across China as part of a government-backed scheme designed to accelerate the adoption of mutual funds. 

The 200,000 new clients have made significantly higher commitments than expected, allocating a total of $315m (Rmb2.2bn) to the joint venture. 

“The average allocation by the new clients at about $1,575 per investor is higher than we anticipated,” Jim Norris, head of Vanguard’s international business, told the Financial Times. 

The joint venture opened with a deliberately low minimum investment requirement of just Rmb800 (about $113) in an effort to democratise the availability of high-quality financial advice, which was only accessible historically to a small number of wealthy Chinese investors. The advice service, which costs about 50 basis points a year, can invest across a range of more than 6,000 funds distributed by Ant as part of an initiative called Bang Ni Tou, or Help You Invest. 

Some early reports had suggested that the joint venture had made a slow start because of the unfamiliarity of potential clients with the new service.

“Vanguard plans to provide more materials on Ant’s platform to help educate clients about the importance of investing towards important goals, such as retirement, as opposed to trading or just saving,” said Mr Norris.

Regulators in Beijing are determined to transform standards across China’s rapidly expanding but immature asset management industry, which has existed for only about 20 years, with the help of international players. 

Local supervisors have now granted permission to 16 managers, including the Vanguard Ant jv, to offer investment advice using mutual funds. 

Assets under management in China’s domestic public funds reached an all-time high of Rmb17.8tn ($2.5tn) in April, up a fifth this year, according to the Asset Management Association of China. Withdrawals from money market funds and bond funds over the past two months cut assets in domestic public funds to Rmb16.9tn at the end of June.

Peter Alexander, managing director at Z-Ben, a Shanghai-based consultancy, said retail investors were “aggressively redeeming” from money market funds and redeploying their money into new launched equity products. 

“Managers including Penghua, E Fund, China Universal and a host of others have raised billions in a matter of hours for new equity launches, heavily supported by the move out of money market funds. The trend also looks to be picking up momentum this month,” said Mr Alexander.

China’s benchmark CSI 300 stock index has risen 28 per cent since reaching its low point for the year in late March, a rally that has triggered concerns that retail investors are being drawn into an unstable stock market bubble.

Chinese equities are trading on a valuation multiple of about 20 times estimated 2020 earnings, according to Société Générale.

Margin finance, where Chinese brokers provide loans to investors to buy equities, has reached its highest levels in five years.

“Retail investor demand for equities may have only just begun,” said Mr Alexander.

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