Vanguard To Shut Down Business In China, End Joint Venture With Ant Group

Vanguard Group, one of the world's biggest mutual fund companies, has planned to shut down its remaining business in China.

The Pennsylvania-based money manager has informed Chinese authorities of its plans to shutter its Shanghai unit, people familiar with the development told Bloomberg. The American asset management giant also intends to pull out from its robo-advisory partnership with Jack Ma-backed Ant Group.

The decision to retreat from China's $3.9 trillion fund market comes two years after Vanguard suspended plans to secure a mutual-fund management license in the world's second-largest economy. It cited a "crowded" market and a shift in its Asia strategy as reasons at the time.

The company, which manages $7.1 trillion in assets globally, had said it would focus on the mutual funds market in China with its advisory joint venture with financial services platform operator Ant Group.

"At this stage, Vanguard believes it can provide more value to investors through the JV advisory service than by offering a select number of funds in what is already a fairly crowded mutual fund market," it said in a statement at the time, reported CNBC.

Vanguard had been facing a number of business hurdles in China, including "the large, existing field of mutual funds; greater demand for purchase of products through intermediaries than a direct channel; and strong investor preference for actively managed funds," a Vanguard spokeswoman told Pensions & Investments.

Following Vanguard's latest announcement, Ant Group said the joint venture and fund advisory services "are operating as usual," according to Reuters. It now plans to acquire the money manager's 49% stake in the joint venture.

Vanguard may also lay off staff at its Shanghai office, sources told the outlet. The Vanguard-Ant JV, in a statement, revealed it had three million investors as of January 2022.

The U.S. fund giant closed down its Hong Kong and Japan operations in August 2020 and moved its Asia headquarters to Shanghai after launching the joint venture with Ant Group in April of that year, according to Nikkei Asia.

The company's shift to Shanghai was seen as a blow to Hong Kong, which had been struggling to strengthen its business community after concerns over China's national security law.

"From a distribution business standpoint, the current industry dynamics (in Hong Kong) are better suited to institutional investors and do not currently support the scale needed for us to operate the economic engine behind our unique, low-cost, individual investor-orientated model," a company statement read.

Vanguard established a wholly-owned subsidiary in Shanghai in May 2017, three years after starting a representative office in Beijing to serve Chinese institutional investors.