UBS rethinks China fund plans
UBS Group AG is postponing plans to build its own mutual fund business in mainland China due to high costs and a dim profit outlook, people familiar with the matter said.
The Swiss bank will instead rely on existing joint ventures to expand in China’s mutual fund industry following the acquisition of Credit Suisse last year, the people said, requesting not to be identified because the matter is private.
Establishing a wholly-owned fund management fir m would require large capital commitments, while the chances of turning a profit in the near term remain low, the people said. The bank had been contemplating a standalone fund platform after China lifted foreign ownership restrictions in 2020.
A media representative for the bank declined to comment.
With the shift, UBS is taking a more conservative approach compared with other Wall Street firms that have invested more money and resources to win a bigger slice of the 27 trillion yuan ($3.73 trillion) market. Morgan Stanley and JPMorgan Chase & Co have taken 100% ownership of their mutual fund joint ventures to maintain better control, while BlackRock Inc and Fidelity International chose to build a new wholly-owned business from scratch.
At the same time, global asset managers are increasingly emphasising the need for profitability in China as many struggle to build market share against the nation’s domestic banking giants. UBS has also been consolidating functions and operations following the acquisition of Credit Suisse last year.
UBS already owns 49% of a joint venture with State Development & Investment Corp, a government-backed money manager. The firm also holds a 20% stake that Credit Suisse held in a tie-up with Industrial & Commercial Bank of China Ltd, the nation’s biggest bank by assets. In addition, UBS has private fund management businesses targeting institutional and wealthy clients.
UBS will use ICBC Credit Suisse Asset Management Co as a beachhead for expansion. The ICBC venture posted a profit of 1.9 billion yuan last year, overseeing 1.7 trillion yuan in assets as of the end of December. The SDIC business generated 346 million yuan in net income, managing 348.6 billion yuan.
Separately, UBS is revamping its private fund management platform by closing the majority of the 11 outstanding equity and bond funds that were launched in China since 2016, according to one of the people. Clients affected by the downsizing can invest in offerings provided by other platforms.
UBS will let go of about 15 of the 50 people on the asset management team over the next few months as part of the restructuring, the person said. The rest of the workforce will focus on the fund of hedge funds business or a programme known as the qualified domestic limited partnership (QDLP), the person added. Reuters earlier reported the fund closures.
The Swiss bank will also take over Credit Suisse’s $400 million quota to invest Chinese clients’ money overseas under the QDLP, according to sources. UBS has another $100 million quota, they added.