BlackRock is moving to beef up its understrength Chinese operations by approaching Tang Xiaodong, a veteran investor with experience on both sides of the Pacific, to run its operations on the mainland, according to people briefed on the move.
Until recently, China was not a top priority for BlackRock. At the end of last year, it had less than $430bn of its assets under management in Asia, down from $471bn at the end of the previous year, primarily as a result of outflows from China and market changes. The US fund manager had less than 7 per cent of its $6tn of total assets in Asia.
However, as China opens up its markets to foreign investors the region is becoming increasingly important for asset managers, including BlackRock. In the next four years, assets overseen by fund managers in Asia are expected to grow at a 12 per cent annual rate — or twice the rate of growth in the US — mainly driven by China.
Mr Tang spent years on the derivatives desk of JPMorgan Chase in New York and then as a managing director at RBS Greenwich Capital before returning to China, where he worked for the Chinese Securities Regulatory Commission from 2009 to 2014. He then ran Beijing-based China Asset Management, the wealth management arm of the powerful Citic group, for the next four years.
During the meltdown of the Chinese equity markets in 2015, the CSRC sought to bring him back without success. Most recently, he ran the securities operations of GF Securities in Hong Kong, where he oversaw the wind-down of an out of control internal hedge fund that had losses in complicated foreign exchange derivatives trades. Those trades were put in place before Mr Tang joined the firm.
Larry Fink, BlackRock’s chief executive, identified China as “one of the largest future growth opportunities for BlackRock” in its annual report last week. Mr Fink said BlackRock was focused on “building an onshore presence” in China, adding that it aimed to become “one of the country’s leading global asset managers”.
Mr Fink said Asia was expected to generate half of the total organic growth in assets under management for the global asset management industry over the next five years, which he predicted would be “largely driven by China”.
BlackRock has held talks with CICC Fund Management, a wholly owned subsidiary of state-backed investment bank China International Capital Corp, about buying a majority stake in the investment unit, according to people close to the situation.
The move to hire Mr Tang comes as China opens its markets wider to investors as a result of regulatory changes and the fact that the country’s debt and equity markets are increasingly part of both emerging market and world indices.
Foreign investment accounts for only about 2 per cent of the Chinese stock and government bond markets, but that figure is expected to increase rapidly.
So-called QFII quotas, once jealously handed out to foreign investors so they could invest a certain amount in Chinese securities, are far more generous today than a few years ago. That trend will only intensify as China’s big current account surplus approaches zero and needs to attract capital to finance coming deficits, as is expected this year.
The asset management industry in China meanwhile is slowly coming of age. “Inefficient markets and a lack of strong corporate governance create an opportunity for active managers to generate Alpha,” noted a recent joint research report from Morgan Stanley and Oliver Wyman.
“We expect the onshore China asset pool to grow from $3.8tn to $7tn by 2023 and we forecast a 10 per cent market share for foreign asset managers by 2023 and revenues of $4tn versus $1tn today.”
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