China approves ICBC-Goldman JV

Goldman Sachs Group has announced that it will set up a domestic asset management joint venture with ICBC, one of China’s “big four” state-owned commercial banks, in the fourth Sino-foreign JV asset management company of its kind to date.

The announcement on 25 May came as China continues to open up its financial market, with the JV being approved by the China Banking and Insurance Regulatory Commission. 

King & Wood Mallesons (KWM) and Paul Weiss advised ICBC and Goldman Sachs, respectively, on the transaction.

Goldman Sachs Asset Management, the principal investment arm of Goldman Sachs Group, will own 51% of the new JV, with the remaining 49% owned by ICBC Wealth Management, a wholly owned subsidiary of ICBC. All foreign asset managers took a majority stake in the three previously approved asset management JVs formed by Bank of China and Amundi, China Construction Bank and BlackRock, and Bank of Communications and Schroders.

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The latest JV plans to develop a wide range of investment products for the China market, including but not limited to quantitative investment strategies, cross-border investments and innovative solutions in alternatives, according to Goldman. 

Liu Linlin, a Beijing-based lead partner of KWM, told China Business Law Journal: “The market for asset management business in China has promising potential. Both shareholders of the JV are industry leaders, and we expect the JV to become a world-class asset management firm.”

According to Goldman, the investable assets of Chinese households will reach approximately RMB450 trillion (USD70.33 trillion) by 2030, of which about 60% will be allocated in non-deposit products such as securities, mutual funds and wealth management products provided by banks.

Establishing partnerships with local banks is vital for foreign asset managers to tap into the Chinese market, where wealth management products are usually distributed by domestic banks.

“With the Chinese side of the JV having strong brand recognition, a network of retail and institutional investors domestically, and the foreign side having extensive experience and expertise in investment and risk management – by combining the strengths of both sides, we expect the JV to offer competitive financial products to a wide range of investor groups,” said Su Zheng, also a lead partner at KWM in Beijing.

In July 2019, the Office of the Financial Stability and Development Committee under the State Council issued 11 measures to further open up the financial sector. The third measure states that “an overseas assets management institution is allowed to form together with a subsidiary of a Chinese-funded bank or insurance company a joint-venture wealth management company with the foreign party having a controlling stake”. These measures also involve the bond market, insurance and insurance asset management, and currency brokerage firms, etc.

“Given the challenging and complicated international conditions, the approval of the JV is a positive signal to investors that China’s financial sector, especially the asset management industry, continues to open up to the outside world,” says Su.

Goldman Sachs Group has made a succession of moves for China expansion amid a gradual opening-up policy environment. Previously, Goldman Sachs said that it would double its employees in China to 600 within five years and increase its asset and wealth management business, in a plan submitted to its board of directors. Last December, Goldman Sachs reached an agreement with its Chinese JV partner to acquire all of the remaining shares of Gao Hua Securities, achieving 100% ownership.

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