TCEHY Tencent Holdings Ltd (PK)

By Jing Yang in Hong Kong and Dawn Lim in New York 

BlackRock Inc. has held talks over the past year with Chinese internet giant Tencent Holdings Ltd., as the world's largest money manager explores ways to strengthen its foothold in China, according to people familiar with the matter.

The preliminary discussions with Tencent have been about how to make BlackRock's tools and models for building investment portfolios broadly available to the Chinese market, the people said.

China is a market BlackRock has long coveted. The New York-based company, which has more than $6.8 trillion in assets under management globally, has had a presence in the world's second-largest economy for more than a decade and its top leadership has earmarked China as a priority.

BlackRock manages a few domestic funds for wealthy clients and institutional investors on the mainland and has offshore investment funds that hold Chinese stocks and bonds. In June, it said it had been approved to offer investment advisory services to asset managers, securities firms and other institutions in the country. Like other foreign asset managers, BlackRock has so far been restricted from selling its own mass-market mutual funds in China, but is expected to apply to do so when Chinese authorities open up the sector further in the coming year.

Tencent is among a number of companies that BlackRock is in talks with as it evaluates potential partners in China, said one of the people familiar with the discussions.

Shenzhen-based Tencent is one of China's largest internet and technology companies and owns the popular Chinese social-media network WeChat. It also runs one of the country's two largest mobile-payment networks and has a burgeoning financial-services business that sells mutual funds and investment products to about 150 million people in the country.

BlackRock's talks with Tencent are at an early stage and there is no guarantee that a partnership will result. The discussions are also taking place while trade talks between Beijing and Washington are in flux.

There have been differing views among BlackRock staffers about what a tie-up with Tencent could entail. The discussions have focused on BlackRock's tools for constructing portfolios and recommending investment combinations, and how they could potentially be offered via a Tencent platform, said some of the people.

There have also been talks about codeveloping a financial software system modeled after Aladdin, a BlackRock technology platform that the firm currently uses and sells to other asset managers and financial institutions, according to one person familiar with the matter. Aladdin is used by portfolio managers globally to model risks and help them execute trades. In China, leading trading and financial-software providers are all domestic and the largest player is Hundsun Technologies Inc., which is controlled by billionaire Jack Ma.

Some employees at BlackRock have been encouraging staffers in Asia to deepen ties with Tencent, according to a person familiar with the matter, particularly after BlackRock's rival Vanguard Group formed a joint venture earlier this year with Ant Financial Services Group, an affiliate of Alibaba Group Holding Ltd. that is also controlled by Mr. Ma.

The company that Ant and Vanguard jointly incorporated, however, hasn't disclosed what it plans to do and is still awaiting regulatory approval to commence business.

Any potential tie-up could give Tencent, which competes fiercely with Ant in mobile payments and sales of mutual funds, a way to gain new ground in China's large and fast-growing financial technology sector. In late September, a Tencent subsidiary and China International Capital Corp., a state-backed investment bank, said they had formed a technology joint venture to focus on the bank's retail brokerage and wealth-management services, among other things. The companies said the venture may extend services to other financial institutions in the future.

BlackRock ultimately has ambitions to become a meaningful player in China's $1.8 trillion domestic mutual-fund industry, which is expected to expand significantly in the coming years. Earlier this year, BlackRock appointed a new head of China, Tony Tang, previously a securities regulator and the former chief executive of one of the country's largest domestic investment managers. He has been tasked with developing and executing BlackRock's business strategy in the country.

At present, BlackRock's China business is relatively small because of restrictions authorities have placed on the domestic activities of foreign asset managers. An equity cap on foreign asset managers' holdings in mutual-fund firms will be scrapped next year and BlackRock, Fidelity International, and several other large global money managers are expected to apply for licenses to manage mutual funds.

Stella Yifan Xie contributed to this article.

Write to Dawn Lim at dawn.lim@wsj.com

(END) Dow Jones Newswires

October 02, 2019 07:48 ET (11:48 GMT)

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