Fidelity International Ltd., one of the world’s largest pension managers, has made a significant move to capitalize on the rapidly aging population in China by launching its first multi-asset public fund of funds. This new offering, designed to meet the growing demand for stable retirement solutions, raised 867 million yuan (approximately $118 million) within just eight days, exceeding its target and making it the third-largest fund of funds established in China since the beginning of 2024. It also marks the largest fund distributed by a brokerage, Citic Securities Co.
The Shanghai-based unit of Fidelity announced that the fund’s strategy is aligned with China’s emerging individual pension plan, which, once regulatory approval is granted, could expand the nation’s retirement savings landscape. The fund’s quick success underscores the strong investor appetite for retirement products in China, as the government grapples with the financial challenges posed by its aging population.
China’s pension system is under increasing strain due to the country’s rapidly aging demographic, declining birth rates, and the growing number of young people opting out of monthly contributions to the state-led “basic pension” system. In response, the Chinese government has introduced policies aimed at strengthening the retirement savings system, including extending the retirement age and allowing additional institutions to participate in the basic pension plan, which holds over 7 trillion yuan in savings.
Fidelity is preparing for the expansion of China’s pension scheme, which Citic estimates could grow to 12 trillion yuan by 2035. However, foreign asset managers face challenges in accessing these funds due to the stringent qualifications for launching pension-related products. Global managers, such as Fidelity and BlackRock Inc., have high hopes for the recently introduced tax-deferred individual pension plan, akin to Individual Retirement Accounts (IRAs) in the U.S., which has grown into a $13 trillion market.
Currently, foreign asset managers are not eligible to offer “retirement-target funds,” the only investment product eligible for the individual pension plan, because they lack the required three-year track record of managing at least 20 billion yuan. Despite this, Fidelity remains optimistic about its ability to succeed in the market. Helen Huang, Managing Director of Fidelity in China, emphasized the growing urgency of pension reform, which she believes opens opportunities for long-term foreign institutions to offer strategies aligned with their global expertise.
Fidelity’s new product, the Fidelity Ren Yuan Stable 3-month Holding Period Hybrid Fund of Funds (FOF), leverages the company’s decades of experience in U.S. pension management. It combines a diverse portfolio of Chinese-based mutual funds that invest across asset classes, including stocks, bonds, and commodities. The fund also allows for investment in Hong Kong-listed stocks and funds via channels like the Stock Connect.
Fidelity has tested the strategy in managed accounts for qualified investors since 2023, with solid returns and minimal drawdowns. The firm’s U.S.-based Fidelity Freedom 2050 Fund, for instance, has generated an annualized return of 8.9% over the past decade.
Despite challenges in the local market, including poor performance from some retirement-target funds and investor concerns about stock-market volatility, Fidelity is confident that its tailored approach can provide solutions to the pension system’s issues in China. Huang stated, “We have the confidence to reverse the situation,” suggesting that Fidelity’s established track record in managing pensions could help restore investor trust in the sector.
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