Finance Association, September 4 (Reporter Shi Sitong) As the mid-year earnings season gradually came to an end, the Financial Services Association reporter noticed that judging from the operating conditions of various institutions, the trend of differentiation in the asset management industry in the first half of the year became more obvious.

According to industry insiders, the asset management industry is currently undergoing a profound transformation process. As the trend of residents' wealth reallocation continues and asset management institutions' anxiety about the “asset shortage” becomes prominent, how to deal with the low interest rate and low return environment and carry out high-quality transformation of the industry has become the key.

“As per capita income continues to grow, the share of financial assets in residents' asset allocation will become higher and higher, and residents' wealth will be transferred from real estate in the past to financial assets.” Li Yongfeng, deputy general manager of Everbright Finance, believes that as residents' wealth continues to accumulate, future wealth management institutions still have a lot of room to provide customers with more accurate and higher quality products.

According to the “China Asset Management Market 2023-2024” report, China is currently in a stage of rapid growth. The total assets of domestic residents reached 718.2 trillion yuan in 2023, and the compound annual growth rate from 2019 to 2023 reached 9.3%.

The financial asset allocation ratio of residents may continue to rise, and deposits are expected to re-enter the capital market

Recently, the “China Asset Management Market 2023-2024” report released by Everbright Finance shows that in 2023, China's domestic market assets were divided and the equity market was sluggish, but the bond market performance was relatively stable. The size of the domestic asset management market grew slightly by 3.41% to 138.38 trillion yuan in twists and turns.

“Compared to major economies, China is currently in a phase of rapid growth.” According to Li Yongfeng, deputy general manager of Everbright Finance, the domestic economy is currently recovering well. As per capita income continues to grow, the share of financial assets in residents' asset allocation will become higher and higher, and residents' wealth will shift from real estate in the past to financial assets.

According to Everbright's financial estimates, the total assets of Chinese residents reached 718.2 trillion yuan in 2023, and the compound annual growth rate from 2019 to 2023 reached 9.3%. Along with the increase in residents' wealth, the share of financial assets in China's total assets has continued to rise since 2018, reaching a high of 44.9% in 2022.

However, in 2023, the incremental contribution of financial assets fell to 43.9%, and the share of stocks also declined slightly by 0.1 percentage points. At the same time, in terms of asset allocation structure, the share of cash and deposits in the financial assets of Chinese residents has gradually increased since 2023.

In response, the “China Asset Management Market 2023-2024” report (hereinafter referred to as the “Report”) argues that compared with the residents' asset allocation structure in major countries around the world, there is still room for improvement in the financial asset allocation ratio of Chinese residents. Looking at the long-term cycle, in a low-return environment, the share of residents' financial asset structures among assets with different risk-return characteristics may return to balance.

“In the long run, breaking the risk-return attributes of various types of financial products are more clear and marketable after initial exchange and deposit interest rates decline, which will help residents form correct risk-return expectations. On this basis, the investment experience brought about by risk return, term matching, etc. will be improved. At the same time, surpassing the bottom line requirements of inflation and the high-quality development of the capital market itself will push residents' capital back into the capital market from deposits.” The report indicates.

At the same time, Li Yongfeng also further stated that the risk appetite of high-net-worth customers has gradually subsided, and the share of residents' deposits has increased rapidly. In a sense, it also shows that wealth management institutions still have a lot of room to provide customers with more accurate and higher quality products. “In the context of net worth transformation, assets and capital have more new opportunities to serve high-quality development and contextual development.” He claimed.

The “asset shortage” problem is highlighted, how can the asset management industry cope with the low-return environment

However, it is worth noting that while the share of residents' financial asset allocation continues to rise, in a low interest rate environment, as the trend of further reduction in credit spreads continues, the shortage of supply of high-coupon assets may become the norm, and the “asset shortage” market continues under pressure from institutional allocation.

According to the report, in line with Japan's low interest rate history and China's actual environment, in addition to carefully carrying out overseas investments, domestic asset management institutions should also improve their capacity building in the four areas of interest rate bond investment and research ability, alternative asset investment ability, passive index investment ability, and asset management product innovation ability, return to the roots of investment and research capabilities, and shift from allocating “ticket interest” to allocating “capacity” to deal with the potential low return environment.

In response, Yu Yong, vice president of China Life Asset Management Co., Ltd., said bluntly that the current low interest rate environment is a huge challenge for the insurance industry. Take insurance asset management as an example. Currently, it is mainly facing the triple pressure of allocation, income, and balance and liability matching management due to falling interest rates.

At the same time, he also pointed out that in the past, Europe, America, Japan, etc. have also experienced a low interest rate environment. Referring to their risk mitigation practices, the main thing is to reduce interest rates on the debt side, while increasing risk-free assets such as treasury bonds and interest rate bonds to allocate overseas assets.

As far as China Life Insurance Asset Management is concerned, Yu Yong believes, first, that further diversified asset allocation is the main way to mitigate risks and reduce fluctuations. Second, seek more opportunities in terms of alternative assets, enhance investment management capabilities, further enrich the product system, give full play to the advantages and characteristics of insurance asset management, and create stable returns over the long term for customers through large-scale asset allocation and the ability to invest in various types of investments.

In addition, Wu Yaodong, chairman of China Post Wealth Management Co., Ltd., further pointed out that as a financial management company, the first problem to be solved in the transformation process is portfolio management capability, and the second is single asset investment and research capability. In his view, as far as China Post Wealth Management is concerned, the future will stick to fixed income as the main core competitive advantage, continuously improve portfolio management capabilities, and truly find a circle of competency from the top down and bottom up.

Traditional business models are unsustainable, and industry transformation faces four major pain points

In fact, the industry generally believes that the current traditional model of asset management business is unsustainable, and China's asset management industry is facing a profound transformation.

“China's asset management industry is progressing steadily, but the trend of differentiation between industries is obvious.” Judging from Everbright's financial estimates, bank financial management recovered from the market shock at the end of 2022 last year, but the scale of financial management still declined by 3.10% year on year; the size of public funds continued to grow slowly, with a year-on-year increase of 4.95%; the insurance industry's premium income grew rapidly, and the scale growth rate of insurance asset management reached 10.47%; the trust industry continued to transform after experiencing the implementation of the new regulations, and the scale increased dramatically, reaching a year-on-year increase of 15.64%, leading the growth rate of other sub-sectors. Meanwhile, private equity fund supervision is becoming more standardized, and the industry has returned to a stable trend. The brokerage asset management and futures asset management channel business continues to shrink, and the overall scale of the industry continues to decline.

Today, the transformation from a product-centered sales model to a buyer-side investment model centered on consulting, which in turn promotes the upgrading of the entire industry, has gradually become an industry consensus. However, in the actual transformation of the industry, there are undoubtedly some unavoidable pain points.

The report points out that in the current process of industry transformation, it is generally constrained by the “four mismatches”: first, the concept of product sales in the past does not match the customer-centered concept under the wealth management model; second, the assessment system based on buyers' sales scale does not match the wealth management business model; third, short-term input and output requirements do not match the concept of long-term continuous investment; and fourth, standardized business processes around products do not match the provision of differentiated services around individuals.

According to Li Yongfeng, investors need joint efforts on the debt side (investment services) and asset side (product performance) to obtain steady returns and a good investment experience.

In response, the report argues that in the future, in the process of seller sales shifting to buyer investment, asset management and wealth management, it is necessary to promote the cultivation and formation of buyer investment concepts through joint efforts of asset management agencies, wealth management agencies, employees, and investors, accelerate the adjustment of talent teams and assessment mechanisms, and establish a digital front, middle, and back office service capability system, so as to reach a high degree of consensus with channels and customers, and ultimately form a full-process closed-loop service system compatible with residents' wealth management.