Vanguard Said to Close China Fund Joint Venture

The Vanguard Group is reportedly closing up operations in China, shuttering both its wholly owned Shanghai segment and its joint venture with Ant Group, according to Chinese publication Caixin Media. 

Vanguard, the No. 2 ETF issuer, established the venture in 2019 with Ant Group, the owner of the world’s largest mobile payment platform, Alipay, to market its funds in China. Vanguard, with $8.1 trillion in assets according to ADV Ratings, has been attempting to acquire a license to market its own funds, but halted efforts to do so in 2021, saying the market was “crowded.” 

Neither the China Securities Regulatory Commission nor Vanguard commented on the report, and Ant Group said to the Financial Times the joint venture was operating normally and wouldn’t elaborate on “market speculation.” 

Despite its enormous success with U.S.-based customers, Vanguard’s product offerings haven’t caught on in China. Its brand, so prominent among U.S. investors, didn’t carry the same weight with Chinese investors, and Vanguard’s strategy of index funds isn’t as popular in China.  

Money market funds and actively managed bond funds make up roughly 75% of Chinese fund assets, whereas equity index funds make up just 10%, according to an analysis by the Financial Times. In the U.S., bond and money market funds make up only about 40% of total fund assets under management as of the end of 2021, according to the Investment Company Fact Book, Vanguard doesn’t have any China-focused ETFs or funds for U.S. investors, although it does offer some broader ETFs with exposure to Chinese companies, such as the Vanguard FTSE Pacific ETF (VPL). It had planned to launch an actively managed Chinese stock fund, VCSIX, announced in 2021, but never followed through. 

While this may not affect offerings to U.S. investors directly, a potential downside may be how it affects the continuing price reductions of ETFs. One thing driving the dropping costs of ETFs and funds in the past several years is the expansion of assets under management by fund managers, allowing companies to increase profits while lowering costs.  

With index funds being a fairly mature market in the U.S., their growth may not be able to continue without further expansion into other markets. The potential failure of Vanguard’s joint venture means the roughly $4 trillion market is closed as an avenue of expansion for Vanguard, at least for the moment.