Two people with direct knowledge of the matter revealed that BlackRock Inc (BLK.N) has started hiring staff accordingly and that later this year it plans to launch its first product in China’s $220 billion onshore exchange-traded funds (ETF) market.
Thriving on the rising of passive investing with 70% of its $10 trillion global portfolios in index funds and ETFs, the world’s largest money manager will be the first wholly-owned foreign fund manager to tap the onshore Chinese ETF market.
A handful of China’s large state-backed investors such as the country’s national pension funds and sovereign wealth fund have a majority of their overseas assets managed by the US fund manager via offshore units since all products sold are foreign-domiciled.
The people said that BlackRock’s first ETF product is scheduled for launch in the fourth quarter and will add to the 6.8 billion yuan ($1.07 billion) worth of assets BlackRock oversees through two mutual funds with investments in Hong Kong and Chinese stocks.
Although the fund manager is yet to decide which index to track for the first ETF product, several index providers have started talks with BlackRock, as highlighted by the people familiar with the matter.
One of the people said that a carbon neutrality-themed index composed by China Securities Index Co was one of the options under consideration. In the last two years, China has seen launches of dozens of environment-linked ETFs betting on buoyant new-energy stocks.
In a statement to Reuters, the company said:
“BlackRock is committed to helping more Chinese investors achieve their financial goals by bringing them a broader suite of investment products and solutions, including ETF and index investments.”
To support its “growth priority”, it is “investing in more local talent”. China Securities Index failed to immediately respond to a request for comment.
Against the backdrop of the continued opening up of the financial market in the second-largest economy in the world, comes BlackRock’s planned foray into the fast-growing Chinese ETF market.
After the fund manager became the first global asset manager licensed to start a wholly-owned onshore mutual fund business in China last year, the move will also boost its presence in the country.
The Fund manager’s operation in China is set to open doors to retail as well as local institutional investors.
A LUCRATIVE MARKET
With over 600 products as of the end of 2021, China’s nascent $220 billion ETF market has only in recent years begun contributing significantly to a global passive fund boom that propelled the sector beyond $10 trillion in value.
Shenzhen Stock Exchange data showed that assets in China’s onshore ETFs grew 30.5% in 2021, better than European peers’ 24.7% growth and almost on a par with the 31.9% growth rate of the United States ETFs.
In 2021, BlackRock’s iShares — which “remained a significant growth driver” in 2021 — drew in $306 billion in assets, accounting for 57% of new money accumulated into all of the firm’s passive and active offerings, according to Chairman and Chief Executive Larry Fink.
The two people said BlackRock is recruiting for roles across ETF-focused marketing, operations, and portfolio management for its China ETF foray. Initially, the firm intends to create a team of five to six employees, they said.
One of the people said that the candidate interviews were being conducted online since business activity in Shanghai has been largely limited by the measures to stop the spread of COVID-19.
Fund association data showed that BlackRock’s Shanghai office currently has at least 70 staff, and the company’s job adverts showed it is set to recruit over 15 more, excluding the ETF hires.
A series of foreign fund houses, including U.S.-based ETF specialist VanEck, have requested licenses to operate in the local fund market since China allowed the operations of fully foreign-owned fund units in 2019.
China is a lucrative market for foreigners because most of the country’s equities ETFs charge a 0.5% management fee per annum, higher than 10 to 20 basis points charged by managers of such products in Europe and the U.S.
Over 80% of the market share is controlled by the country’s 10 largest ETF providers, most of them being local players.
($1 = 6.3656 yuan)