UBS dials back China fund plans on high costs

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.

Establishing a wholly-owned fund management firm would require large capital commitments, while the chances of turning a profit in the near term remain low, the people said. The bank had been contemplating a stand-alone fund platform after China lifted foreign ownership restrictions in 2020.

With the shift, UBS is taking a more conservative approach compared to other Wall Street firms that have invested more money and resources to win a bigger slice of the 27-trillion-yuan (RM17.82 trillion) market. Morgan Stanley and JPMorgan Chase & Co have taken 100% ownership of their mutual fund joint ventures (JVs) to maintain better control, while BlackRock Inc and Fidelity International Ltd chose to build a new wholly owned business from scratch.

At the same time, global asset managers are increasingly emphasising the need for profitability in China as many struggles to build market share against the nation’s domestic banking giants. UBS has also been consolidating functions and operations following the acquisition of Credit Suisse last year. UBS already owns 49% of a JV with State Development & Investment Corp, a government-backed money manager. The firm also holds a 20% stake that Credit Suisse held in a tie-up with Industrial & Commercial Bank of China Ltd (ICBC), the nation’s biggest bank by assets. In addition, UBS has private fund management businesses targeting institutional and wealthy clients.

UBS will use ICBC Credit Suisse Asset Management 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. The Singapore Deposit Insurance Corp Ltd business generated 346 million yuan in net income, managing 348.6 billion yuan. — BLOOMBERG / pic TMR FILE

  • This article first appeared in The Malaysian Reserve weekly print edition