Report: Dynamic Chinese wealth managers thrive under lax regs

The Phoenix International Think Tank, under Chinese media group Phoenix New Media, listed the top ten third-party wealth managers in China in its recent report on China’s wealth management industry.

The list is based on factors such as registered capital, assets under management, number of clients, product types and branch network. However, the firm did not provide a rank or data for the top 10.

Source: Phoenix International Think Tank

Independent wealth managers in China tend to address a variety of issues for clients such as asset allocation, taxation, legal advice and charitable donations, the think tank noted.

Noah, for example, has asset types ranging from mutual funds, fixed income, real estate to some “private funds” such as hedge funds or private equity funds. “It partnered with about 78 fund houses to help distribute 2,000 mutual funds and 100 private funds,” the report stated.

A selection of Chinese wealth managers, as of 2016 Q3

Source: Phoenix International Think Tank

*Noah and Jupai are listed on the NYSE

Cross-border activity

China’s independent wealth managers have focused on expanding operations offshore. 

Creditease has partnerships with a number of foreign managers, including Morgan Stanley, real estate developer and investment firm Tishman Speyer, as well as Wellington Management.

Hang Tang set up office in Hong Kong last June to operate overseas asset management and insurance advisory businesses. The firm expects to open more branches in other regions such as Singapore, London and New York, according to a statement from the firm.

Hywin Financial Holding Group, a Shanghai-based conglomerate with a wealth management arm, acquired UK-based Azure Wealth, now known as Hywin Wealth.

NYSE-listed Noah had signed a pact with Union Bancaire Privée in July 2015, and started business in Hong Kong back in 2012, as reported earlier. 

Noah has also been increasing the amount of offshore assets it manages. The report said overseas assets managed by the firm had grown 42% year-on-year to RMB 15.9bn ($2.34bn) at the end of third quarter 2016.

Jupai, also listed in the US, has Julius Baer as a minority shareholder. Jupai opened an office in the SAR in October 2015, as reported earlier.

Independent WM challenges

“However, the third-party wealth managers account for a very small marketshare in China’s overall wealth management industry,” roughly RMB 4.7bn, or 5% of marketshare as of 2015-end, the report noted.

The ratio compares to about 30% in Hong Kong and Taiwan, or above 60% in the US or Europe, the report said.

China’s regulators have not kept pace with the expansion of standalone wealth management, the report said. 

“There are still no clear regulations about third-party wealth management companies and they lack standard requirements on new entrants setting up a wealth management business or [existing firms] expanding operations,” the report said.

According to the report, there have been scandals in which some of China’s biggest wealth management players failed to return investments to clients or violated regulatory rules in some way.

“The commission-based model also means the services are product-based. There might be a conflict of interests and the objectivity of these service providers cannot be guaranteed,” the report said.

Some of the wealth managers also have an asset management arm that sells product, which might also lead to a biased view. 

Amid rapid development of other private banks and trusts, these independent wealth managers also face more intense competition.

“A top priority is [for regulators] to oversee the third-party wealth managers as soon as possible and draft proper rules to regulate their activities,” the report said.