Fan Hua, Chairman of BlackRock Fund: Down-to-earth brings customers a good investment experience

China Fund News reporter Wu Juanjuan

Fan Hua has a brilliant resume. After graduating from the Department of Mathematics of Peking University, she went to Columbia University for further study, and later held key positions at Goldman Sachs and China Investment Corporation. When the wealth management subsidiary of Bank of China started, she joined CMB Wealth Management. In 2022, she joined BlackRock CCB Wealth Management as General Manager, and earlier this year, she was promoted to Head of BlackRock China and Chairman of BlackRock Funds.

Fan Hua's promotion to head of BlackRock China was not the highlight of BlackRock's business in China. Recently, Fan Hua shared her views on BlackRock's China business in an interview with a reporter from China Fund News, including the performance ups and downs and personnel changes experienced by BlackRock Fund Company.

Fan Hua said that the BlackRock fund looked at the problem and is solving it. For example, by adjusting the way researchers are evaluated, they can be motivated to make greater contributions to portfolio performance. In her view, the effects of these initiatives are gradually being felt. She said that BlackRock Fund hopes to become the first choice for foreign investors to invest in China, the first choice for China's overseas layout, and most importantly, to bring a good investment experience to local investors. However, the premise of all this is to accumulate good investment performance and make money for investors.

Fan Hua's voice was gentle and clear when he shared. However, her career choices reveal that she loves challenges and wants to keep stepping out of her comfort zone. At the level of "technology", she is pragmatic and efficient, facing and solving problems. We will wait and see what new changes such a person in charge can bring to the BlackRock Fund.

At present, it is a good time to lay out equity products

China Fund News: You mentioned earlier that fund products need to be reversed, is it time for reverse layout?

Fan Hua: First of all, it should be noted that the issuance of public offerings is the result of the joint action of regulators, channels and managers. Therefore, sometimes it is not the manager who chooses to reverse the layout, and the product can be sent out immediately, which is an objective fact. On the basis of acknowledging this premise, I believe that the current time is a better time for the layout of equity products.

Valuation is an important factor in determining whether the timing of the layout is appropriate. Currently, A-shares are in the bottom zone. At the same time, regulatory support for the market is relatively strong. Slowly, some investors began to lay out at the bottom. Judging from these factors, I believe that now is a better time to issue equity products.

In the current market environment, investment managers can select better targets that are worth investing in and are expected to bring better returns in the future. BlackRock funds are issuing products with a contrarian style of fund managers. There are some good targets in his simulated warehouse, and some of them are not bought by everyone. Of course, there are also targets that are widely concerned by the market, such as AI themes.

China Fund News: In the past two years, BlackRock has recruited some fund managers from domestic public funds. Some people say that local fund managers must be at the helm of equity products in China. Do you agree with this statement?

Fan Hua: My answer to this question is: Analyze the specific situation on a case-by-case basis.

In terms of equity strategy, before the establishment of BlackRock Fund, private equity funds had learned from the quantitative strategies of overseas teams and achieved good results. When the mutual fund started, we considered implementing this strategy in the public fund, but then encountered some difficulties, and we had to abandon this plan. At present, BlackRock's fund equity products are managed by active fund managers, rather than a systematic management plan that continues some overseas strategies. The fund manager of the first equity product came from BlackRock's previous private placement. Later, we continued to expand our team and introduced fund managers with rich experience in domestic investment, such as Shen Yufei and Bi Kai. In addition, the equity products issued by BlackRock CCB Wealth Management continue the overseas quantitative strategy. So far, products using this strategy have performed well in China, ranking in the top 10% of comparable products. This shows that overseas quantitative strategies can be implemented in China and achieve relatively good results, and in the same way, good investment managers may also achieve good results.

In terms of fixed income products, the local fund managers we have brought in have performed well so far. Of course, the performance record of the current products issued is still on the short side, and further observation is still needed.

In terms of talent selection, we are eclectic. If there is a suitable overseas fund manager who is willing to come back, or if there is a good fund manager in the market who shares BlackRock's investment culture, we welcome it.

China Fund News: I talked about the timing of the layout earlier. As the chairman and general manager of an institution, the issues to be considered are different from those considered by the chief investment officer and fund manager. Can you talk about the difference between the two?

Fan Hua: The chief investment officer and fund manager directly manage the investment strategy or portfolio, and the concept can be directly reflected in the portfolio, which is immediate. As a manager, I respect the investment manager's process. Of course, many times everyone thinks the same thing. However, even if there is a consensus of opinion, it is the fund manager, not the manager, who implements the investment management process. Therefore, the influence of managerial perception on the portfolio is indirect.

Managers consider the rhythm and planning of the company's overall product release, and to a certain extent, they need to "choose the time". However, the timing here is limited. As mentioned earlier, product distribution is constrained by many factors, and the idea of managers reversing the layout and launching products at the low point of the market sometimes does not work. Because when a product can be shipped depends on when the product is approved, the channel product schedule, etc., so in terms of new product release, reverse layout is sometimes just a "good wish".

The good news is that there is now an increasing emphasis on continuous marketing, from regulation to industry. In terms of continuous marketing, managers are slightly more proactive. Of course, it may be difficult to scale up equity products issued at low points. How to guide investors to subscribe and get a good investment experience is also a big challenge.

Investors begin to distinguish between investment managers

Luck and ability

China Fund News: In the past three years, managers and channels have been under great pressure. Some managers said that the channel is no longer chasing "big-name" fund managers.

Fan Hua: We're not surprised by this. Because the experience of the operation of the overseas fund industry shows to a certain extent that there are many factors that affect the performance of fund managers, including luck. It can even be said that a large part of the performance of some fund managers is contributed by Beta. We don't think such fund managers should be paid high premiums.

Over the past three years, investors have experienced three "painful" years. After the past three years, the market, channels, and investors have become more rational, among them, investors have begun to distinguish the luck and ability of investment managers.

Recently, we are very pleased to see the introduction of the new "National Nine Measures", which will promote the long-term healthy development of the capital market. Only when the beta income of the stock market itself is improved, and the "cake" is bigger, will the industry be good. Otherwise, the "zero-sum game" among practitioners will make it difficult for the asset management industry to be sustainable.

The source of the asset management industry is listed companies. If listed companies can continue to make profits, and this is reflected in the stock price, our stock market can play a role in capital allocation. Only when the stock market selects good companies and eliminates bad companies will the asset management industry have good development opportunities.

China Fund News: Is public fund still a "channel-led" market?

Fan Hua: To a certain extent. However, we have seen changes in the last few years. First of all, channel diversification. The proportion of third-party channel fund holdings has increased, and Internet channels have become a force to be reckoned with. Second, the proportion of institutional funds has increased. If overseas experience can be used as a reference, the increase in the proportion of institutions is a sign of market maturity. Compared with the average individual investor, institutional investment is more rational. Different institutions will make different choices in the same market environment based on different investment objectives: some buy, some take profit. Diversification of investors is more conducive to the healthy development of the market. Third, the buy-side investment advisory is initiated. If the buy-side investment advisors can start from the perspective of investors, they are expected to solve the problem of "funds make money, but the people do not make money" to a certain extent.

China Fund News: In recent years, everyone has been talking about the "retailization" of institutions, what do you think of this phenomenon?

Fan Hua: It's true that not all institutions pursue long-term investment and adhere to long-term assessment. However, based on my personal work experience, some institutions in China are adhering to the concept of long-term assessment. As long as the institution can adhere to the long-term assessment, there is a foundation for long-term investment. Based on this premise, institutionalization is a worthwhile goal for the asset management industry. My experience is that investment institutions that adhere to long-term assessment have better long-term performance.

China Fund News: Please talk about the product layout of BlackRock funds this year.

Fan Hua: At the end of last year, we issued a short-term bond product, and we are currently issuing an equity fund, and we are still preparing an institutional version of the interest rate bond product. At the same time, we hope to issue several more short- and medium-term bond products and "fixed income+" products with different holding periods.

We have also issued equity products that have performed well, such as BlackRock Advanced Manufacturing, and fund managers have also accumulated a certain track record. If conditions permit, we will consider continuing to issue equity products in the second half of the year. Considering the current market time, we believe that such a product has a high potential to make money for investors in the medium and long term. However, because the current risk appetite of investors is low, we are also studying whether to adopt an initiation approach to issue equity products.

Foreign investment layout in China and

The overseas layout of Chinese institutions is very important

China Fund News: Overseas investment is the strength of foreign capital, what preparations are you making?

Fan Hua: BlackRock CCB Wealth Management has issued some QDII products, and the performance is relatively good. As a new public fund company, BlackRock Fund still needs to accumulate a certain amount of assets under management before it can obtain QDII qualification. However, we are also exploring other paths.

In the current market environment, for the majority of Chinese residents, overseas investment is a supplement to domestic investment. It is necessary for domestic investors to hold certain overseas assets in the portfolio to diversify the risk of domestic assets. A portfolio with sufficient diversification of risk factors is expected to bring investors long-term stable returns.

In the long run, for the long-term healthy development of China's capital market, it is necessary to make the "cake" bigger. The beta of the market is considerable, and overseas funds will naturally come in. At the same time, domestic institutional investors should also go out to participate in overseas layout. It is a relatively healthy state to have in and out.

China Fund News: ETFs are developing rapidly, both domestically and globally. Will you launch an ETF product line in China?

Fan Hua: In overseas markets, BlackRock's ETFs have really done a lot and have been very successful. However, the business model of overseas ETFs is different from that of domestic ETFs. To be clear, we're talking about passive ETFs and don't consider actively managed ETFs for the time being.

Overseas institutions and individuals have clear expectations for ETFs, and they require ETFs to be as close to the index as possible to reduce tracking error. More and more institutions and individuals are choosing passive ETFs over actively managed products based on the advantages of transparency, low fees, and liquidity. In some markets, ETF products can also be profited through tax optimization. For managers, it can get a part of the income by lending coupons. Therefore, despite the low rates, the manager has other sources of income. For investors, passive ETFs and passive index funds have attracted attention because of their low fees and transparency, because of the difficulty of funds exceeding benchmarks in overseas developed markets.

The business model of domestic ETFs is very different: first, investors expect managers to generate excess returns even for ETFs, second, the overall higher fees of domestic ETFs than overseas are positive for managers, third, in China, ETFs are less likely to earn significant income by lending out bonds, and fourth, ETFs need significant investment to cooperate with market makers to provide liquidity.

At the same time, we have also observed that bond ETFs have developed very rapidly in overseas markets in recent years, and there are also opportunities in the field of Chinese bond ETFs. BlackRock Group has a high market share of overseas bond ETFs and has rich experience, and if the corresponding model can be transplanted to China, it can further activate the liquidity of China's bond market.

China Fund News: BlackRock Fund has undergone a lot of personnel changes since its establishment, what do you think about this?

Fan Hua: The management of many overseas investment institutions is relatively stable for a long time. Compared to these institutions, BlackRock has changed a lot. This, of course, has to do with BlackRock's development path. Over the years, BlackRock has continued to acquire the teams or businesses it needs from around the world and make acquisitions. After the merger and acquisition, it faced system integration and team integration. Overall, we believe these changes are positive. Capable employees and senior employees will get better opportunities, and those who are not suitable for the organization may choose other opportunities.

In the Chinese market, we are just getting started, and both BlackRock Fund and BlackRock CCB Wealth Management are still in the entrepreneurial stage. Measured by startups, our turnover rate is not high, especially the retention rate of good employees is still very good. In this process, we have also been bringing in talent.

Make money for investors

It is the core essence of asset management institutions

China Fund News: BlackRock Group is one of the world's largest asset management institutions, how do you want investors to know its domestic public fund company - BlackRock Fund?

Fan Hua: As the core of an asset management institution, the core of the public fund is the "fiduciary responsibility", which requires the manager to put the interests of customers first and make money for customers, which is the foundation. BlackRock Group has many cultural labels, such as dedication to customer service, the pursuit of excellence, not advocating individual heroism, emphasizing teamwork, valuing diversity and inclusion, a diverse cultural environment is more conducive to the development of asset management institutions and fund managers to achieve excellent performance, and risk management, which does not allow fund managers to take excessive risks to achieve outstanding results. In the short term, the effect of this rigorous risk management concept may not be obvious, but in the long term, its effect will be felt.

In the next three to five years, the capital market can continue to develop healthily, and we hope to develop the advantages of overseas investment while landing locally, so as to become the first choice for domestic customers to allocate overseas assets, and the first choice for overseas investors to invest in China. Of course, we want to be the first choice for our local customers.

We are also well aware that there is still a long way to go to achieve the goal, whether it is the scale of management, team building, or the richness of the product. We can only start from a down-to-earth basis and bring a good investment experience to customers. Investors make money, and the scale and influence of the channel will naturally increase slowly.

China Fund News: This year's annual letter to investors from BlackRock Group CEO Larry Fink is about pension, what is the difference between designing pension products in China and designing pension products overseas?

Fan Hua: To design pension products in China, it is necessary to combine overseas theories with customer needs and regulatory rules.

For example, the first product issued by BlackRock CCB Wealth Management in the pilot pension is a 10-year product, and we hope to maintain and increase the value of the product as much as possible at the strategic level, so we have designed a strategy of interest rate debt and equity. At the moment, the product is working well. Among the more than 50 pilot products, the performance ranks relatively high. Because its stock allocation ratio is higher than that of other pension financial management pilot products, its performance is more prominent when the stock market is good, but when the stock fluctuates greatly, its performance will be affected to a certain extent.

In the third quarter of last year, we launched a personal pension wealth management product - a target risk strategy product. Because of the limited amount of funds coming in initially, we chose the strategy of opening on a daily basis, so that customers can buy every day, and because of the low risk appetite of customers, we set the volatility of the product at 2%, which is much lower than that in overseas markets.

These two examples illustrate that overseas methodologies should be integrated with the needs of Chinese customers.

China Fund News: You have a rich career experience, having gone through large overseas investment banks, sovereign wealth funds, wealth management subsidiaries, and now you have come to foreign institutions in China. How do you respond to challenges in your ongoing transformation?

Fan Hua: On the surface, I have experienced a lot of types of institutions, but what I did in the front laid the foundation for the future. I don't start from scratch in every transformation. For example, the experience accumulated at Goldman Sachs became the basis for his later work at CIC, and later transferred to the wealth management subsidiary, and the framework of overseas asset allocation is still useful. However, it needs to take into account factors such as the scope of local investments, customer preferences, etc.

I would like to emphasize the importance of communication and exchange in the asset management industry. For example, managers who do not have an investment background may be less receptive to fluctuations in the performance or size of an institution. We need to fully explain to him or her: how should investment be measured, how should we see the impact of ability and luck on the performance and scale of the institution? For example, the managers and superiors of foreign-funded institutions may have expectations for fluctuations in performance and scale, but are not familiar with domestic policies and daily operation and practice of the institution, so we need to do more explanation work in this regard. We face different communication challenges in the face of different organizations and superiors. All in all, it's important to communicate and manage expectations.