Ni Jianda, Jupai
At the end of 2017, the firm’s AUM grew 59% to RMB57.5 bn while the total number of active clients who purchased a product at least once during the year reached 12,825, up from 10,218 from a year prior.
Jupai had an annual net profit gain of 97.3% to RMB 409.5m ($64.7m) from RMB 207.6m in 2016, according to its 2017 financial earnings released on Monday.
One-time commissions derived from short-term investments increased 64% to RMB 1.04bn.
“The one-time commissions were at a low level in 2016 and only started to recover in 2017,” Ni Jianda, chairman and chief executive officer of Jupai said in a conference call.
“Given the strong expectation of renminbi depreciation beginning in the second half of 2016, high net worth clients preferred to allocate more into short-term fixed income products.”
Jupai results (RMB)
|Q4||Y-O-Y||Full year 2017||Y-O-Y|
Source: Company statement
Shift from fixed income
Last year, wealth management products distributed by Jupai were predominantly fixed income products. Around RMB 45.4bn of client assets or 83% of the aggregate assets was invested in fixed income products. The underlying assets of the products are primarily real estate-related, according to Ni.
However, due to the authority’s control of credit for real-estate projects, many domestic banks have ceased to lend to property developers on the mainland, local media reported. Because the channel for raising capital is controlled, China’s real estate developers are relying more on private equity investors.
Ni sees the regulation as a “rare opportunity” for Jupai to move away from bonds issued by developers to taking a stake in ownership, for example through private equity, convertible bonds and preferred shares.
Last year, private equity and venture capital fund products accounted for only 12% or RMB 6.38bn in assets, but he sees that figure increasing while fixed income exposure reduces.
“Property companies will face more difficulties and higher costs in financing bank loans and bond issuance,” he said. “This is a very rare opportunity for Jupai when channels to raise capital have been massively squeezed. Consequently, it enhanced our bargaining power.”
Ni said the firm will negotiate with property developers to propose investing in their preferred shares. “We would initiate discussions with the quality real estate companies, for instance starting with those ranking among the top 100 in the country.”
New WMP rules
China’s regulators have tightened the regulations over wealth management practices and products in an attempt to mitigate systemic risk to the financial system.
Managers cannot offer investors a guaranteed rate of return, according to one prohibition in the draft guidelines released by the People’s Bank of China.
Ni expects the new policy to result in consolidation of China’s wealth management industry.
“The new rules is likely to force companies which cannot adapt to the new regulatory environment out of the industry, ” he continued. It would however represent an opportunity for the firm to enhance our market share by 2020 when the regulatory authorities completely end products which would guarantee returns.”
Shanghai-based Jupai currently operates in Hong Kong and opened local offices New York and San Francisco last year. Talking about expansion plans, Ni said the firm would follow their potential clients and strategic partners.
“In 2018, we would consider setting up additional offices overseas. But the prerequisite is a stable performance of our core business,” he added.
The firm estimates its net revenue for the first quarter of 2018 to be in the range of RMB 400m to RMB 420m, representing an increase of 8.5% to 13.9% compared to the same period in 2017.