Tencent and BlackRock tie-up could yield big advantages

News that BlackRock and Tencent are in talks for various types of co-operation is the kind of positive development both companies need.

BlackRock is looking for ways to make its investment and portfolio-modelling tools available to the Chinese market, Bloomberg News and the Wall Street Journal reported. They may also co-develop a financial software system similar to BlackRock’s own Aladdin.

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, of which JSE-listed Naspers owns 31%, 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 US 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 ($112bn) 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 frontman 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.

• Culpan is a Bloomberg Opinion columnist covering technology. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Bloomberg