Although China has been opening up its market to foreign fund managers, there are still plenty of obstacles, as my colleague Nisha Gopalan wrote. Tencent also faces challenges, including how to stand out in a crowd.
By sticking the BlackRock brand name onto Tencent’s WeChat (aka Weixin) platform, both companies get a win. The cachet of being able to promote a leading U.S. financial institution would be priceless to Tencent. Chinese consumers are spoiled for choice, but there’s still strong demand for credible and reliable names with whom they’ll entrust their money.
Tencent’s LiCaiTong wealth management platform already has 800 billion yuan ($112 billion) in aggregated assets, making the social media company a major financial institution in its own right. And let’s not forget the trillions of yuan that sloshes through the Weixin Pay system every year.
While best known for the WeChat instant messenger and its foundation as a games company, Tencent’s Fintech and Business Services division has quietly grown into a powerhouse. It includes payments, wealth management and cloud services and accounted for 26% of revenue in the second quarter, behind only online games sales.
More importantly, it’s the fastest-growing division amid a general slowdown in China and a weakening advertising market. Even if the economy is looking less robust, the need for consumers to manage the wealth they’ve accumulated over the past decade will remain strong. If the companies also develop a software platform similar to Aladdin – a suite that offers tools including risk and portfolio management and trade execution – then Tencent could gain a competitive advantage in handling all that money.
Should the talks pan out, BlackRock could do worse than jump into bed with a company that’s everywhere in China. More than 1.1 billion people use WeChat every month, not only to message each other but to share news, check the weather, pay bills and book hotels. With a partner like that, BlackRock wouldn’t need a bank or other financial institution to be the front man for its products.
Removing friction is the goal of many technology companies. Tencent has the platform to extract money, and BlackRock offers places to park it. That’s the kind of match Wall Street loves.
(Updates with disclosure of Bloomberg LP’s competing product in the second paragraph.)
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Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.