Goldman Sachs and Industrial & Commercial Bank of China received approval to begin their wealth management joint venture.
Qilai Shen/Bloomberg
After a year’s wait, Goldman Sachs Group and the Industrial & Commercial Bank of China (1398.Hong Kong) can begin their wealth management joint venture. That has not only whet the appetites of U.S. firms eager to seize the massive Chinese market, but it also raised questions on how foreign influence will impact an industry long considered opaque in China.
Granted tentative approval last year, and recently given the green light to begin operations, Goldman Sachs ICBC Wealth Management gives the U.S. investment bank a 51% stake and ICBC 49%. The wealth tie-up isn’t the first in China. Europe’s Amundi (AMUN.France) and Bank of China (601988.China) were the first, and have taken in more than $11 billion in assets in the year and a half since it launched in late 2020, according to Amundi .
Last year, the China Banking and Insurance Regulatory Commission (CBIRC) approved a wealth management venture in which BlackRock (BLK) holds 50.1%, China Construction Bank (939.Hong Kong), 40%, and Singapore’s state fund Temasek Group at 9.9%. Approval for a similar venture between Schroders (SDR: United Kingdom) and China’s Bank of Communications (3328.Hong Kong) soon followed.
But the Goldman Sachs-ICBC collaboration may be the most interesting so far, in part because of Goldman Sach’s vast expertise, but mainly because ICBC is the world’s largest bank by assets, and has the widest network of client branches in China and is the country’s biggest seller of purely wealth management products.
The scope of the joint venture will be wide, including mainly wealth management products but also management of investment property, consulting services, “and other services approved by the CBIRC,” ICBC said in a statement when the initial partnership was authorized last year.
Goldman Sachs referred Barron’s to the June 24 statement by ICBC announcing the approval for operations that in part said that ICBC will now “implement the relevant procedures in strict compliance with laws, regulations and regulatory requirements.” Goldman Sachs declined to comment further.
The approval of wealth management joint ventures is the latest in a string of liberalizations China has made in allowing foreign firms to take controlling or wholly-owned stakes in a range of financial-services areas. Last year, foreign companies were given the go-ahead to take full control of their mutual fund partnerships.
Last year, Goldman Sachs (GS) followed JPMorgan Chase (JPM) in receiving approval for full control of its China securities venture. China’s insurance industry has seen similar relaxations recently.
One question is what exactly these new foreign-Chinese wealth management services will look like. Part of this stems from a confusion of terminology. In the U.S. wealth management means a service that, usually a bank, provides which looks at an individual’s comprehensive wealth profile and aims to secure or maximize that wealth.
In China, where long-term investing is still in its infancy, wealth management usually means purchasing wealth management products, which are risky, often opaque in detail, and aren’t included on balance sheets.
Yet wealth management products are mouthwatering to many Chinese, due to China’s domestic constraints. Normal bank deposits give obscenely low yields, there is not a huge variety of domestic investment options like there is in the West, and China strictly controls capital flows.
But perhaps most importantly, China has a perfect storm brewing in that its population is rapidly aging at the same time its pension system is fragmenting and becoming largely privatized. A high-saving society desperately needs to invest in retirement-age security.
Those are part of the reasons investible products are set to explode in China. Goldman Sachs’ own research predicts that by 2030, China will have some $70 trillion worth of assets invested in some form. More than half of that will be in non-deposit products such as wealth management products, as well as securities and mutual funds.
Besides the influence of more transparent foreign partners, China has stepped up regulation to bring the industry out of the shadows. It now requires two licenses—one that was long needed for general asset managers, and a newer one specifically for wealth management, which together give firms access to China’s estimated $4 trillion retail banking market.
Banks now must also set up subsidiaries specifically for wealth management, which regulators said would help make it harder to leave assets off balance sheets.
Source: barrons.com
