Vanguard to Exit China Fund Business Due to Profitability Decline

On the 21st, Bloomberg reported that Vanguard Group, the world's second-largest asset management company, is set to fully withdraw from the Chinese bond market, which is worth 27 trillion yuan (5,141.34 trillion won).

Bloomberg, citing internal sources, stated that Vanguard Group has conveyed its intention to close its Shanghai branch in China. It is also known that Vanguard plans to exit the robo-advisor business that uses AI algorithms to provide investment advice in partnership with Ant Group, the financial subsidiary of Alibaba. Previously, Vanguard Group had scrapped plans to establish an independent fund management company in 2021 and shifted its focus to advisory services.

[Image source=AP Yonhap News]

Vanguard Group's withdrawal from the Chinese market contrasts with the moves of global asset management firms such as BlackRock, the largest asset manager in the U.S., and Fidelity International, which are competing to expand their businesses in China. Morgan Stanley has also decided to increase its stake to 100% in the joint venture 'Morgan Stanley Huaxin Fund Management' established with Huaxin Securities to expand its influence in the Chinese market.

The primary reason cited for Vanguard Group's decision to exit the market is deteriorating profitability. Vanguard Group suffered losses of $3.8 million in the Chinese market last year, exceeding its forecast by five times. Bloomberg reported, "Vanguard Group faced limitations in business expansion due to its low brand recognition and the influx of market competitors," adding, "Although Wall Street firms have entered the Chinese market decades ago, they still lag behind Chinese banks and securities firms, resulting in poor performance in asset management."

The poor performance does not appear to be limited to last year alone. Since entering the Chinese market in 2019, Vanguard Group has implemented various solutions to improve profitability, but the decline in performance has been difficult to reverse. In 2021, it nearly halved the fees for its flagship Chinese robo-advisor service and lowered the minimum investment amount from 800 yuan (152,464 won) to 100 yuan to attract customers. However, this was still higher than the fees charged by Huatai Securities, one of China's leading securities firms, resulting in a failure to secure price competitiveness.

Bloomberg stated, "Vanguard Group's decision will be seen as a warning sign by other global asset management firms aggressively expanding in the Chinese market," adding, "The fund advisory market is becoming overheated with many competitors entering, and profitability is declining."