Fidelity International plans to pull out of wholly owned China fund unit, sources say

By Selena Li

HONG KONG, Aug 20 (Reuters) - Fidelity International (FIL) plans to exit its wholly owned China ‌fund unit, two people familiar with the matter said, marking one of the biggest retreats by a global asset manager from the world's second-largest economy. 

London-headquartered FIL, which manages $1.18 trillion in client assets globally, is weighing a total retreat from its onshore fund unit three years after its launch, according to the two people who spoke on condition of anonymity because the exit plan is not public. 

A combination of fierce local competition, frequent leadership turnover and chronic struggles to build scale ultimately convinced global FIL executives that the China retail venture was untenable, the people said. 

The planned departure highlights the growing headwinds for foreign financial firms in China, with squeezed margins hampering expansion since Beijing allowed fully foreign-owned units in 2020, attracting six global asset managers to set up new onshore operations including Fidelity and BlackRock. 

"China remains an important market for Fidelity International and we continue to believe it offers attractive long-term opportunities both for our business and for investors. There is no change to report on our strategy or market presence," FIL told Reuters in a statement. 

Boston-based Fidelity Investments originally set up FIL as its international unit, before spinning it off as an independent business in 1980. Both FIL and Fidelity Investments are chaired by American businesswoman Abigail Johnson. 

It remains unclear how FIL plans to restructure or liquidate its 14 China retail fund products, which hold 4.5 billion yuan ($670 million) in assets. That's well below a target set for 2029, according to a 2024 internal document reviewed by Reuters. The firm believed then that the China unit needed at least $14 billion in assets to be profitable. 

FIL assets under management peaked one year after the unit's launch at 6 billion yuan, before dropping 25% from there as of the end of June, the latest reports on its China products show. 

The Shanghai-based unit employs nearly 100 people, according to one of the sources. 

The China Securities Regulatory Commission told Reuters it has not received any official withdrawal application from FIL. 

Beijing has in recent years pledged to open its financial markets further to foreign players by rolling out measures to ease ownership barriers across funds, banks and insurance, simplifying licensing and expanding investment scopes. 

OTHER ASSET MANAGERS PULL BACK 

Any FIL plan to exit its China fund unit would be subject to change and require regulatory approval. The planned exit would, however, represent one of the most prominent retrenchments from China's $5.9 trillion public fund market by a foreign asset manager over the last decade. 

FIL has so far put $218 million into the unit, the largest among all foreign wholly owned fund houses, topping BlackRock's $215 million, business registration records showed.

Just last month, British rival Schroders became the first foreign manager to exit its wholly owned onshore fund unit — which managed $250 million in local assets — offloading its products to Neuberger Berman amid scaling struggles, according to announcements from both firms. 

The Schroders move followed earlier pullbacks by other peers, including Legal & General, which halted its China expansion plans, and Vanguard, which closed its local fund sales joint venture and abandoned plans to enter the mutual fund sector. 

Any FIL exit from China's onshore mutual fund market would cap a broader, gradual pullback in China, an economy which lost momentum at the start of the second half of this year on weaker industrial output and consumption.  

FIL cut about 500 positions at its Dalian technology and operations centre in late 2024 over data concerns, having already cut 16% of the local fund management staff earlier that year amid sluggish growth and cost pressures. 

The China fund management business has experienced rapid leadership churn since its inception five years ago, cycling through four board chairmen and three chief executives. 

($1 = 6.7372 yuan)

(Reporting by Selena Li; Editing by Tom Hogue)