UBS China suspends funds management project after Credit Suisse deal

UBS is pausing work on its application for a wholly owned mutual fund firm in China in order to finish its acquisition of Credit Suisse and address any regulatory concerns brought on by the union, reported Nikkei Asia quoting people familiar with the situation.

The hasty acquisition of Credit Suisse in March hindered UBS's plans to grow its fund management business in China, where corporations are only allowed to hold one majority stake and one minority stake in the industry.

UBS had been attempting to obtain a licence for a fully owned mutual fund firm because it owned 49 per cent of a joint venture with the government-owned SDIC Taikang Trust, according to Nikkei Asia.

The 20 per cent that Credit Suisse now owns in a joint venture with the Industrial and Commercial Bank of China (ICBC) would be acquired by UBS as part of the 3 billion Swiss francs (USD3.3 billion) deal for Credit Suisse.

As a result, UBS has chosen to postpone the mutual fund application while it considers its options in China, according to people familiar with the situation.

According to one of the individuals, quoted by Nikkei Asia, UBS met with the China Securities and Regulatory Commission this year to obtain preliminary approval for filing the mutual fund application. No final decision has been taken, the source said, so UBS may approach the watchdog once the Credit Suisse deal is finished.

UBS declined to make a comment on the matter.

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, and 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.

In China's banking and securities industries, UBS and Credit Suisse were also rivals. In September 2022, Credit Suisse and Founder Securities agreed to purchase all of the shares in their joint venture for Chinese securities. Investors questioned representatives from Founder on March 10 about the status of the merger, and they responded that everything was "proceeding in order," nine days before to the merger, reported Nikkei Asia.

A representative of the Beijing-based Kangda Law Firm, which is providing legal counsel on the transaction, likewise declined to comment, citing the "sensitivity" of the circumstance.

About 260 billion yuan (USD 37 billion) in assets are managed by the joint venture between UBS and SDIC Taikang Trust and 752.7 billion Yuan worth of assets are held by ICBC Credit Suisse Asset Management.

Last year, the asset management sector in China experienced slower growth. According to data from Wind Information, assets increased by 1.2 per cent to 25.75 trillion yuan in 2022, compared to growth rates of 26.9 per cent in 2021 and 36.4 per cent in 2020.

The downturn happened when investors became more risk-averse as a result of China's zero-COVID regulations, which caused significant market volatility. Due to competition from well-known local fund companies, raising capital from Chinese retail clients proved to be particularly difficult for overseas managers, as per Nikkei Asia.

BlackRock witnessed its assets decline from more than 6.6 billion yuan in September 2021, when its first fund was launched, to 5.5 billion yuan in a year. BlackRock was the first foreign manager to get a fully owned licence to offer retail funds in China.

According to the latest data at the end of March, total assets at BlackRock, which now runs five funds, remain below their peak.

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