Fund giant Pioneer Group announces withdrawal from China, what warning signs

Scott Conking, the regional head of U.S. fund giant Vanguard Group Inc. announced to employees at the Shanghai World Financial Center in March that the company would withdraw from China, abandoning its push for a mutual fund license and relying only on its consulting venture with Ant Group Co. to to maintain its business in China. The news caused a big shock to the market.

More than 30 employees on the video call were shocked, Bloomberg reported on April 29. According to people familiar with the matter, more than a dozen employees were fired immediately after Kang Jin finished speaking. One of the employees then suddenly burst into tears.

Behind Pioneer’s seemingly hasty retreat is the result of years of high-level review of the viability of its low-cost model in China, sources close to the situation said. The conclusion, at least for now, appears to be that it “won’t work. It’s a wake-up call for other global asset managers that are aggressively jumping into China’s $13 trillion wealth management market.

Even though China (the Communist Party) claims the economy has emerged from a plague pandemic since last year, pioneer concerns about costs, distribution, staffing and regulations continue to grow, people familiar with the matter noted.

Regulations are also an issue. While the CCP claims to have opened the door for foreign fund licenses, it has toughened its requirements for foreign firms. Chinese (CCP) regulators asked Fidelity Investments and Neuberger Berman to commit to providing liquidity support for their license applications last November, raising concerns about additional capital costs for Pioneer Group. A year after the Communist Party opened its foreign fund licenses, only BlackRock Inc. has been granted a license.

Given the costs and lack of competitive advantage, Pioneer may have realized that even if it launched its own fund in China “it wouldn’t help,” said Francis Chan, a Bloomberg analyst.

It’s been decades since the Wall Street firm first entered the China market, but operations are still dwarfed. International fund companies raised just $470 billion in China in the first eight months of 2020, less than half of the $967 billion raised by China’s 100 local fund companies, according to data compiled by Morningstar Inc. and Bloomberg.

A spokesman for Pioneer Group declined to comment on the news.

The newspaper noted that the group has begun to wane in its enthusiasm for China since Tim Buckley took over as chief executive, and that under Buckley’s guidance, the new finance chief has begun to assess quarterly profits for each business line and region, while there were some signs last year that the group’s ambitions in Asia were shrinking.

In August 2020, Pioneer drew market attention when it announced plans to close operations in Hong Kong and Tokyo, affecting 70 jobs. The group said at the time that “current industry dynamics” did not support its low-cost model.

In October 2020, Pioneer divested further, returning some $21 billion in assets under management to Chinese (Communist Party of China) government clients. It also lost its $590 million business operating in Taiwan due to poor performance.