UBS Group AG is postponing plans to build its own mutual fund business in mainland China due to high costs and a dim profit outlook, people familiar with the matter said.
The Swiss bank will instead rely on existing joint ventures to expand in China’s mutual fund industry following the acquisition of Credit Suisse last year, the people said, requesting not to be identified because the matter is private.
UBS Group AG, the Swiss bank, has recently announced that it is postponing its plans to build its own mutual fund business in mainland China. The decision comes in response to high costs and a dim profit outlook. Let’s delve into the details:
UBS had been contemplating establishing a stand-alone fund management firm in China after the country lifted foreign ownership restrictions in 2020. However, the bank has now decided to take a more conservative approach.
Reasons for Postponement
High Costs: Establishing a wholly-owned fund management firm would require significant capital commitments. Given the current economic climate and uncertainties, UBS has opted to rely on existing joint ventures instead.
Profit Outlook: The chances of turning a profit in the near term remain low. UBS is taking a cautious stance, considering the challenges faced by other Wall Street firms in the Chinese market.
Alternative Strategy
Rather than pursuing a stand-alone fund platform, UBS will leverage its existing joint ventures. The bank already owns 49% of a joint venture with State Development & Investment Corp., a government-backed money manager. Additionally, UBS holds a 20% stake that was previously held by Credit Suisse in a tie-up with Industrial & Commercial Bank of China Ltd., the nation’s largest bank by assets.
UBS will also use ICBC Credit Suisse Asset Management Co. as a beachhead for expansion. The ICBC venture posted a profit of 1.9 billion yuan last year, overseeing 1.7 trillion yuan in assets as of the end of December.
Industry Trends
While UBS’s decision may appear conservative compared to some competitors, it reflects a growing emphasis on profitability in China’s mutual fund industry. Other global asset managers are also recalibrating their strategies to navigate the complexities of the Chinese market.
Conclusion
UBS’s move underscores the challenges faced by financial institutions in China. High costs and uncertain profit prospects have led the bank to rethink its approach. As the Chinese market continues to evolve, UBS will need to adapt and find innovative ways to participate in its growth.
Here’s a summary of the recent news regarding UBS Group AG’s plans in mainland China:
UBS Dials Back China Fund Plans on High Costs, Grim Outlook
- Date: April 23, 2024
- Source: Bloomberg News
UBS Group AG, the Swiss bank, has decided to postpone its plans to establish its own mutual fund business in mainland China. The reasons behind this decision are high costs and a dim profit outlook. Instead of creating a wholly-owned fund management firm, UBS will rely on existing joint ventures to expand its presence in China’s mutual fund industry. This strategic shift comes after UBS’s acquisition of Credit Suisse last year.
Here are the key points:
- Reasons for Postponement:
- High Costs: Establishing a wholly-owned fund management firm would require significant capital commitments.
- Profit Outlook: The chances of turning a profit in the near term remain low.
- Comparison with Other Firms:
- UBS is taking a more conservative approach compared to other Wall Street firms.
- Morgan Stanley and JPMorgan Chase & Co. have taken 100% ownership of their mutual fund joint ventures.
- BlackRock Inc. and Fidelity International chose to build new wholly-owned businesses from scratch.
- Existing Ventures:
- UBS already owns a 49% stake in a joint venture with State Development & Investment Corp.
- The bank also holds a 20% stake (previously held by Credit Suisse) in a tie-up with Industrial & Commercial Bank of China Ltd., the nation’s largest bank by assets.
- UBS has private fund management businesses targeting institutional and wealthy clients.
- Beachhead for Expansion:
- UBS will use ICBC Credit Suisse Asset Management Co. as its beachhead for further expansion.
- The ICBC venture posted a profit of 1.9 billion yuan last year, overseeing 1.7 trillion yuan in assets.
- The State Development & Investment Corp. business generated 346 million yuan in net income, managing 348.6 billion yuan.
- Private Fund Management Platform:
- UBS is revamping its private fund management platform by closing most of the 11 outstanding equity, bond, and other funds launched in China since 2016.
- Clients affected by the downsizing can invest in offerings provided by other platforms.
In summary, UBS’s decision reflects a pragmatic approach, considering the challenges posed by costs and profitability in China’s dynamic mutual fund market.
