Vanguard starts new China unit as fund management market expands

[SHANGHAI] Vanguard Group Inc has started a wholly foreign owned enterprise in Shanghai, adding to a growing list of foreign money managers moving to tap China's expanding investment management market.

The firm's Chief Executive Officer Bill McNabb announced the step at a press conference in the city Thursday. The so-called WFOE will help the firm better serve clients, he said in a Bloomberg television interview after the press conference.

Chinese regulators have told him that they want more open markets, more capital flow and the development of a more sophisticated retail investor base, Mr McNabb said in the interview.

China has accelerated opening up its capital markets to foreign investors to help counter capital outflows and promote global use of the yuan. Fidelity International this month beat global peers to start a private fund in Shanghai. The government also increased access to the world's third-biggest bond market through Hong Kong, opening another path for foreign investment.

In the economy which bond legend Bill Gross dubbed the "mystery meat of emerging-market countries," a crackdown on leverage has caused a slump in stocks and bonds. The Shanghai Composite Index has retreated 3.6 per cent since the end of March amid spiking debt yields after regulators issued a flurry of directives, targeting everything from excessive borrowing to speculation in equities.

Valley Forge, Pennsylvania-based Vanguard is best known for being a pioneer in the area of low-cost index funds and managed about US$4 trillion in assets as of year-end.

BLOOMBERG