Invesco, the US fund manager, has reaped $14bn in funds under management through a link with the financial arm of Alibaba, the e-commerce group, as fund groups scramble to expand in China’s growing investment market.
The Atlanta-based group struck an agreement last year to add a mutual fund to a wealth management platform that allows the 700m annual users of Alipay, the popular payments app, to shift money from online bank accounts into investment funds. It has helped Invesco quadruple the assets managed by its local joint venture, Invesco Great Wall, to $31.5bn, since the fund was added in June.
Invesco is one of a handful of big fund groups positioning for rapid growth in China’s investment business. Overall assets under management in China are expected to rise to $9.3tn in 2023 from $5.3tn in 2018, according to Oliver Wyman, the research group. UBS has estimated the fee revenue from mutual funds in China to increase fivefold to $42bn by 2023.
“The future is coming out of China right now,” said Martin Flanagan, chief executive of Invesco. “This is the highest growth possibility for asset management in the world right now — there is no question it’s an incredible opportunity.”
The Yu’E Bao wealth management platform, which translates to “Account Balance Treasure”, began as a money-market fund but has morphed into a platform for investment funds managed by third-party asset managers such as Invesco. The switch occurred after Chinese authorities grew concerned that the fund posed a systemic risk after becoming the world’s largest money market fund. Alipay is owned by Ant Financial, the financial services arm of Alibaba.
Invesco will manage $1.2tn when its acquisition of OppenheimerFunds closes this quarter and was an early mover in China. The company has a 49 per cent stake in the Invesco Great Wall, which it launched in 1992, and remains the only joint venture bearing the name of a foreign fund house.
Mr Flanagan said greater uptake of mobile banking technology meant the investment business had leapfrogged the traditional distribution channels common in the US and Europe, where mutual funds were hosted on wealth management platforms such as those operated by Merrill Lynch and Morgan Stanley. As a result, technology companies would challenge banks as the traditional conduits for fund sales, he said.
“The historical strength has come from the banks, but it’s the emergence of the e-commerce platforms that hold the future,” Mr Flanagan said.
Asset managers pushing further into China include BlackRock, the world’s largest fund group. Larry Fink, its chief executive, has urged Chinese regulators to open access to its market to stem a “retirement crisis” on the grounds that its ageing population has few investment options to support life after work. The world’s largest fund manager with $6.5tn in assets last month hired a former Chinese regulator to lead its local operations.
China has recently relaxed certain access rules to allow foreign fund groups to expand in the country. Foreign companies can now own majority stakes in joint ventures that offer mutual funds to Chinese investors. Analysts believe that JPMorgan Asset Management will be the first to strike a majority holding in its joint venture by purchasing a 2 per cent stake which a fellow shareholder is expected to place up for auction next month.
“Five years ago in Shanghai, it became apparent how mobile technology was used in financial services — it was a wake-up moment,” Mr Flanagan said.