The new tie-up between Boston-based State Street Global Advisors and China’s E Fund Management sounds like an important deal. After all, it links the third biggest fund house by assets in each of the world’s two biggest economies. But some have raised questions about the extent to which the partnership will benefit each firm.

SSGA is the third largest asset manager not only in the US but also globally, with $2.4 trillion in AUM, while E Fund has around Rmb1 trillion ($144 billion) under management. This week they announced a memorandum of understanding (MoU) to “explore strategic opportunities across global markets” in product development and market access.

Guangzhou-based E Fund can draw on SSGA’s smart-beta and indexing capabilities, among other things, while SSGA is looking for access to the Chinese market in areas such as pensions and wealth management.

E Fund already has a strong institutional client base, which includes the National Social Security Fund. It also has relationships with corporate pensions, especially in south China. Wong suggested that SSGA and E Fund could tap this market more.

What are the synergies?

Vanessa Wang, managing director for institutional business development in North Asia at Amundi, told AsianInvestor she thought the MoU was significant, but questioned what the synergy of the two firms would be.

“There’s a lot of companies trying to access China in different ways,” said Wang. “Some do joint ventures or offer advisory services, and some, like AMP and China Life, establish MoUs. [The Australian insurance group and the mainland insurer set up their partnership in 2013.]

“This one is interesting because neither State Street nor E Fund have their own distribution channels," said Wang. "They are both asset management companies relying on banks or insurance company sales channels.”

Although E Fund has a retail distribution network covering, it claims, 52 million investors, it relies on third party bank distribution for its retail products.

Qiumei Yang, Hong Kong-based CEO of fund industry lobby group ICI Global Asia Pacific, said her take on the MoU statement was that the two firms are concerned initially about product development.

Legacy relationship

The tie-up between the two firms has much to do with the influence of Kwan Sau, president of E Fund and a former managing director of State Street in China. Kwan joined E Fund in 2014 after 10 years at the US firm.

She pointed to SSGA’s experience in indexing and smart-beta solutions as potentially beneficial to E Fund when it came to product development.

June Wong, SSGA’s head of Asia ex-Japan, confirmed that her firm could offer its breadth of investment capability across passive, smart beta, active, alternatives and private equity solutions, while E Fund has the distribution network in China.

Wong (pictured left) added that SSGA saw potential opportunities “across a number of key segments, including wealth and pensions”.

Wong will have management responsibility for the tie-up for SSGA from Hong Kong, while Yang Dongmei, E Fund's general manager of global investor services, will oversee it from Guangzhou.

Wong said she could not confirm whether the scope of the MoU included setting up a dedicated onshore business unit. “We will strengthen our team in China progressively, according to market demand and client needs,” she said.

Yet presumably SSGA will ultimately need an onshore presence if it is to provide services directly to mainland investors. That is why a number of other foreign fund houses, such Aberdeen, Fidelity and Amundi, are lining up to establish onshore wholly foreign-owned entities.

Of course, Beijing could decide to open another new route for China market access at some point, and what that might be is anyone's guess.