Ant Financial and Vanguard Group, two of the world's largest financial companies, have formed a partnership that may aid in bringing Vanguard's products to Chinese investors. Ant Financial, which is one-third owned by Chinese ecommerce giant Alibaba (NYSE:BABA), has already proven to be a disrupter in the Chinese financial services industry. This move may help to solidify its position as a market-leading financial institution.
Although Ant Financial is not a publicly-traded company, investors can gain partial access through ownership of Alibaba shares.
Partnership with Vanguard
Vanguard Group has agreed to an investment advisory joint venture with Ant Financial. The tie-up is part of a government-backed pilot designed to drive up adoption of mutual funds.
Vanguard provides investment services to 20 million clients worldwide. However, that number is dwarfed by the 700 million people currently utilizing Ant's platform. However, Ant is gradually opening up its platform to allow its clients to access financial services from third-party providers.
Ant may have decided to provide more third-party services on its platform in response to regulatory concerns surrounding its money-market mutual fund, Yu'e Bao, which peaked at over $250 billion, and its potential to create systemic risks. Ant had already instituted rules limiting flows into the fund to head off risk concerns.
Growing Third-Party Partnerships
Invesco and Ant entered into a joint venture - Invesco Great Wall - last year, which saw the introduction of one of Invesco's funds added to Ant's platform. Assets in that fund have quadrupled to $31.5 billion since the initiation of the joint venture. Additionally, six other fund companies are understood to be participating in a one-year pilot program with Ant Financial.
Scant Details Available
While the deal has captured the attention of industry watchers around the world, very few details concerning the agreement have been made public. However, Chinese media has reported that Ant will hold 51% of the joint venture, while Vanguard will hold the remaining stake.
The agreement offers Vanguard the potential to bring its business to the forefront of investors' minds by partnering with one of the largest and most trusted brand names in China.
Disruptive Business Model
Ant has already brought innovative financial products to the Chinese population. Ant's Alipay online payments platform is widely used and has helped to facilitate the growth of ecommerce in the country. Consumers in China can pay for products and services online, raising the potential to transform China into a cashless society. It has also offered banking services, loans, investment services, etc., to broad swaths of the Chinese population who previously did not have access to these services.
Ant Financial continues its strategy to bring new financial services and products to the mass population in China. The company's joint venture with Vanguard is the latest example of that strategy.
Although Ant is not a public company, investors can purchase shares of Alibaba, which holds 33% of Ant Financial.
Disclosure: I am/we are long BABA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.