UBS China fund management project stalls after Credit Suisse deal

UBS is suspending work on its application for a wholly owned mutual fund company in China as it focuses on completing its acquisition of Credit Suisse and resolving regulatory issues raised by the new combination, according to people familiar with the matter.

The rushed takeover of Credit Suisse in March complicated an effort by UBS to expand its fund management operations in China, which permits companies to have one majority stake and one minority stake in the sector.

UBS, which owned 49% of a joint venture with state-owned SDIC Taikang Trust, had been trying to secure a license for a wholly owned mutual fund company.

However, as part of the 3 billion Swiss franc deal ($3.3 billion) for Credit Suisse, UBS would acquire a second minority stake in a Chinese fund manager — the 20% Credit Suisse holds in a joint venture with Industrial and Commercial Bank of China (ICBC).

As result, UBS has decided to put the mutual fund application on hold as it figures out what to do in China, the people familiar with the matter said.

UBS had met with the China Securities and Regulatory Commission this year to secure a preliminary nod for submitting the mutual fund application, one of the sources said. Once the Credit Suisse deal is done, UBS could approach the watchdog again, but no final decision has been made, the person said.

UBS declined to comment.

Nicolas Omondi, director at financial services consultancy Z-Ben Advisors, said he thought UBS would probably sell the Credit Suisse stake in the ICBC joint venture. With a minority stake, he said, “you probably wouldn’t be able to leverage it for distribution, probably wouldn’t be able to do much in terms of influencing the direction of the business.”

He said finding a buyer would not be hard given the joint venture’s “solid place” in the Chinese market. He said the challenge would be finding a buyer “acceptable” to ICBC. Goldman Sachs, which currently owns a majority stake in a wealth management joint venture with ICBC, could fit the bill, he said. Goldman declined to comment.

UBS and Credit Suisse were also competing in banking and securities businesses in China. In September 2022, Credit Suisse agreed to acquire all the shares in its Chinese securities joint venture with Founder Securities. On March 10, nine days before the merger, representatives from Founder said the deal was “proceeding in order,” when asked by investors about its progress.

Credit Suisse declined to comment on the Founder transaction. A spokesperson for the Beijing-based Kangda Law Firm, which is advising on the deal, also declined to comment, citing the “sensitivity” of the situation.

The UBS joint venture with SDIC Taikang Trust manages about 260 billion yuan ($37 billion) in assets. ICBC Credit Suisse Asset Management has 752.7 billion yuan in assets.

Growth in the Chinese asset management industry slowed last year. Assets rose 1.2% to 25.75 trillion yuan in 2022, compared with 26.9% growth in 2021 and 36.4% in 2020, data from Wind Information shows.

The slowdown came as China’s zero-COVID policies sparked huge market swings, generating risk aversion among investors. Raising money from Chinese retail clients proved particularly challenging for international managers due to competition from well-known local fund houses.

BlackRock, the first foreign manager to obtain a fully owned license to raise retail funds in China, saw its assets shrink from more than 6.6 billion yuan in September 2021, when its first fund was established, to 5.5 billion yuan in 12 months. Total assets at BlackRock, which now runs five funds, remain below their peak, according to the latest data at the end of March.

So far, seven foreign companies have set up wholly owned retail fund companies in China. The latest to gain regulatory approval was U.S.-based AllianceBernstein, which went through a 28-month application process. VanEck, a U.S. exchange-traded fund specialist, paused its application earlier this year, after China’s securities watchdog raised questions about its size. (asia.nikkei)