BlackRock Under Scrutiny as It Closes China Fund

BlackRock is closing its China Flexible Equity fund as of November 7, 2023, the firm announced in a September 5 shareholder letter.

Specifically, the BlackRock Global Funds (BGF) offering will cease operations after amassing just $22.3 million in assets since its launch in October 2017.

China Flexible Equity Fund Fails to Capture Investor Interest

The news comes just after the US Securities and Exchange Commission (SEC) pushed back its decision on spot Bitcoin exchange-traded fund (ETF) applications until at least October. The delay affects BlackRock’s application and those from WisdomTree, Invesco Galaxy, VanEck, Bitwise, and others, all filed earlier this year.

The delay follows a humiliating blow for the SEC on the spot Bitcoin ETF front on August 29. The DC Circuit Court of Appeals has allowed Grayscale Investments to proceed with converting its Bitcoin Trust into an ETF.

The court overturned a previous SEC decision that had blocked the fund’s listing on NYSE Arca, calling it “arbitrary and capricious.”

BGF chair Denise Voss explained the decision on BlackRock’s China Flexible Equity fund as “a lack of new investor interest” and a bleak outlook for significant future subscriptions. Additionally, she noted that continuing to manage such a small fund would drive up costs, which would not serve shareholders’ best interests.

As a result, BlackRock halted new investments in the fund as of August 24, 2023. However, existing regular savers can still join until October 31, as long as their contributions were agreed upon before the August cutoff date.

Now, shareholders have three options: switch to another BlackRock fund free of charge, redeem before the November 7 liquidation date, or have their holdings automatically redeemed when the fund shuts down.

BlackRock Under Scrutiny for China Ties

This closure comes following increasing concern over US investments in Chinese companies. In August, BlackRock and other firms braced for tighter oversight following a congressional probe into investments in Chinese firms judged national security threats.

Moreover, an executive order signed on August 9 imposed limits on US investments in certain Chinese technology industries.

Additionally, on July 31, the House Select Committee on the Chinese Communist Party accused BlackRock of investing in Chinese companies that undermine US interests. The committee demanded documents related to the firm’s holdings in China.

Overall, US mutual funds and ETFs have nearly $294 billion invested in Chinese stocks and bonds, according to Bloomberg data. While not all of that is in concerning companies, BlackRock, Vanguard, Fidelity, and DWS manage funds with Chinese exposures currently under the congressional microscope.

In light of the intensifying regulatory attention, BlackRock’s move to close a small China fund may curb risk and costs. However, the firm’s broader investments in the country remain under scrutiny.