Invesco Forges a Different Path in China From Its Bigger U.S. Rivals

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As the world’s biggest asset managers gear up to make inroads into China’s mutual-fund industry,

Invesco Ltd.

IVZ 4.74%

has its eyes on a different prize.

The Atlanta-based investment firm is hoping to manage a piece of China’s national pension fund, betting its nearly two-decade record of investing ordinary Chinese citizens’ money could help it win the coveted job.

“We would like to be a manager for the social-security fund,” Invesco Asia-Pacific Chief Executive

Andrew Lo

said in an interview, referring to the $400 billion-plus reserve fund created by the Chinese government to supplement and support the financial needs of the country’s pensioners.

Invesco Great Wall Fund Management, the firm’s China joint venture, “will be in a good position to be qualified” when the national pension reserve fund is ready to onboard new managers, Mr. Lo said. He added that he hopes that could happen within the next two years. The last time new investment mandates were allocated for yuan-denominated assets was in 2010.

Invesco’s ambition, which contrasts with that of its bigger U.S. rivals, extends the unique path that the 85-year-old American firm has charted in China.

Other top global asset managers are currently seeking bigger shares in their local joint ventures, forging new partnerships with powerful Chinese banks and vying for new fund-management licenses in the world’s second-largest economy. Invesco has instead chosen to keep its Chinese partner—a state-owned securities company—by its side, using the 18-year-old joint venture to expand, and entrusting its local talent with navigating the country’s burgeoning yet labyrinthine market.

China has long placed ownership restrictions on international firms that want to operate financial businesses in the country, and only moved to ease such limitations in the past three years. Under the first phase of a U.S.-China trade deal signed in early 2020, Wall Street was promised greater access to China’s financial sector.

BlackRock Inc.,

Fidelity International and the asset-management arm of

JPMorgan Chase

& Co. are setting up wholly owned businesses in China to sell mutual funds to individual investors. BlackRock and

Goldman Sachs

also are targeting wealth management in the country via joint ventures with state-owned banks.

Invesco’s Chinese business, Invesco Great Wall, was set up in 2003 as the first Sino-U.S. fund-management joint venture. In 2006, Invesco and its partner,

China Great Wall Securities Co.

, raised their respective stakes to 49% from 33%. Two other Chinese companies each own 1% of the Shenzhen-headquartered business.

The venture has been expanding in China’s cutthroat and highly fragmented mutual-fund industry. Its assets under management grew more than eightfold in the past decade. As of March 2021, Invesco Great Wall managed the equivalent of $77 billion in mutual funds and other investment products, making it the country’s 19th-largest asset manager, according to Wind, a data provider.

Invesco has managerial control over the unit even though it isn’t a majority owner. Since its inception, the joint venture’s articles of association stipulate Invesco has the sole discretion to name the general manager, the top job at the firm, according to Mr. Lo.

“In a joint venture, if we’re not clear about who runs the shop, it can be very unstable for people,” said Mr. Lo, who has run Invesco’s Asia-Pacific operations from Hong Kong since 2001 and was involved in setting up the Chinese business. “So at the outset, I wanted to make sure that we have clarity,” he said.

Invesco Great Wall has capitalized on emerging trends in mutual-fund investing in China. In 2018, it was one of the first external asset managers to sell its money-market mutual fund on a popular investing platform operated by Ant Group Co.’s Alipay. That fund’s assets under management grew rapidly as a result.

Now, 40% of Invesco Great Wall’s assets under management are sourced from digital channels, according to Mr. Lo. Alipay, which is used by more than one billion Chinese consumers, is now the country’s second-largest mutual-fund distributor after

China Merchants Bank,

according to official data.

To draw more individual investors, Invesco Great Wall’s Shenzhen-based team jumped onto a popular retail marketing trend in China known as live streaming. The phenomenon, which captivated Chinese consumers last year during the coronavirus pandemic, has seen a range of product sellers promoting their wares live via digital platforms.

Invesco’s Chinese money managers and research analysts have used it to hawk funds to hundreds of thousands of people via mobile apps. Last year, the firm hosted 166 live-streaming sessions, 59 of them targeted at individual investors. Those sessions, typically lasting hours, were hosted on Alipay’s app and included perks such as handing out virtual envelopes of cash known as red packets to viewers.

To attract more eyeballs, the company has conducted some shoots in supermarket aisles and featured investment professionals test driving electric vehicles when explaining investment opportunities. Some sessions have drawn more than two million viewers.

The decision to do live streaming was a no-brainer, according to

Li Li,

deputy CEO at Invesco Great Wall. “We saw the demand from customers, and we reacted to it. It was a bottom-up decision,” she said.

Mr. Lo said Invesco’s China growth plan is better fulfilled with a local partner, and the firm has no intention to take full ownership of the joint venture. In 2018, Invesco reached an agreement in principle with its Chinese partner to take a majority stake in the domestic business, but has yet to act on it. “We like our local shareholder. Even if we increase the stake a bit, we will continue to be a joint venture,” Mr. Lo said.

Since the third quarter of 2018, Invesco has been consolidating assets managed by the Chinese unit onto its own balance sheet. Last year, Invesco Great Wall’s net revenue made up 5.8% of Invesco’s $4.5 billion total, according to the firm’s annual report. Invesco managed a total of $1.4 trillion in assets as of March 2021.

“Right now Invesco has the best of all worlds. They run the business, they’re able to consolidate the [assets under management] and they don’t have to spend a billion dollars to do that,” said Peter Alexander, managing director of Shanghai-based consultant Z-Ben Advisors.

He added that the chances of securing pension investment mandates would be much lower for a wholly foreign-owned manager with little to no record in the country. “China has demonstrated for the longest time that when a new business opportunity arrives, they provide that opportunity to a specific number of domestic firms and allow them to get a first-mover advantage,” Mr. Alexander said.

Mr. Lo, who sits on the board of Invesco Great Wall, said he hopes the business could win mandates to manage equity and fixed-income assets for China’s social-security fund.

“The whole replacement ratio has been declining and yields need to improve. It’s imperative for the social-security fund to onboard new professional managers,” said Ray Chou, a Hong Kong-based partner at consulting firm Oliver Wyman, referring to the percentage of a worker’s preretirement income that is paid out by a pension plan upon retirement.

The replacement ratio in China’s pension program is around 45%, according to state media reports. The ratio needs to be at around 60% if retirees want to maintain a preretirement living standard. Beyond the social-security fund, the government is trying to develop employment and commercial pension plans to fill the growing demand that comes from an aging population.

Write to Jing Yang at Jing.Yang@wsj.com

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