8
Citi Transaction Services | Citi OpenInvestor
(those launched through trusts, with
fundraising results disclosed) have
seen AUM move from RMB46bn
(USD7.2bn) in 2010 to 156bn
(USD24bn) as of the beginning of
2012. Relatively strong performance
and a certain exclusive cachet have
caused Chinese high net worth
investors to fock to the segment.
Banks have recently entered the
(short-term) asset management game
as well, through what are locally
known as bank wealth management
products. These are very short-term
duration notes (one to six months, on
average) with decent yields. Based
on their association with China’s
major banks, wealth management
products are viewed as risk-free by
domestic investors. Having been
burned in the past by nearly every
investment type imaginable (stocks
in 2007 being the most recent
example), many investors are leery
of trusting any individual manager
who could allocate a large portion
of their wealth to any individual frm
for an extended period of time. Bank
wealth management products solve
both concerns of investment type and
duration, as well as provide short-term
cash management in order to build
up suffcient capital for what some
are calling threshold investments
— property in most cases. Despite
concerns over unreasonably high
prices in real estate markets, investors
are still interested in the segment,
and short-term, risk-free cash
management has grown as a result.
This bifurcation demonstrates that
demand for investment management
is moving away from a medium-risk
mean, and toward two opposite
ends of the spectrum: higher-risk
allocations, such as private funds
and private equity among high net
worth investors and institutions; and
low-risk, short-term investments
among retail buyers. So far, the fund
management industry has struggled
to provide solutions for either
extreme, and clung to traditional
equity-centric products. While more
managers are beginning to offer bond
funds that mimic the characteristics
of bank products — early movers have
seen strong results — but overall,
these new assets still only account
for a tiny portion of industry AUM,
and are a fraction of what the banks
are capable of drawing to their wealth
Exhibit 3: Bank Wealth Management Product Launches,
January 2007 – January 2012
The rapid growth of bank wealth management products seen over the past 18
months demonstrates that there is actually a considerable amount of demand for
short-term wealth management solutions
Sources: Z-Ben Advisors, Wind
Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12
0
500
1,000
1,500
2,000
2,500
3,000
coverage of the country’s investors,
particularly retail and mass affuent.
The pace of policy development has
had an impact as well. The China
Securities Regulatory Commission
(CSRC) is one of three major
regulators for the fnancial services
industry, but has traditionally been
the least infuential in creating the
overall policy framework; its interests
may at times have been put on the
back burner in favor of maintaining
stable national growth. China, for
all of its success in the past several
years, remains a developing country.
The other two key regulators are
the China Insurance Regulatory
Commission (CIRC) and China Banking
Regulatory Commission (CBRC), which
have traditionally had signifcantly
more pull than securities regulators.
This is hardly surprising, given the
importance of the banking system to
the health of the broader economy.
Nonetheless, tides appear to be
shifting, and over the past two
years CSRC has taken an extremely
aggressive stance on bringing
China’s securities markets in line
with global standards. This will not
only impact equity players but also
fund managers, which also fall under
CSRC’s purview. Much of this has
been motivated by Beijing’s recent
push to internationalize its currency.
While overall stability remains a top
priority, convincing other countries
to utilize the RMB to settle trades
requires a much more complex
institutional framework than currently
exists. Liberalization of the asset
management industry, to provide
investment solutions for offshore
holders, is just another part of this
effort.
High-Risk, Low-Risk
Returning to the domestic market,
it is important not to ignore the
nontraditional segments of China’s
fnancial industry. Some of these
segments have seen extremely
strong growth over the past several
years. Private funds, China’s version
of hedge funds, have witnessed
robust expansion in AUM. Since
2010, “sunshine” private funds