Securities Broker Asset Management: Steady Transformation with Institutional Differentiation (I) Review of the Overall Development of Securities Broker Asset Management in 2023 In 2023, the asset management scale of securities brokers continued to decrease, but the management scale of securities broker asset management stabilized on a quarter-on-quarter basis in the first quarter of 2024.
In line with the classification standards released by the China Securities Investment Fund Association (AMAC), this article examines the securities broker asset management products, which include securities companies and their asset management subsidiaries.
The scope of the asset management scale includes private asset management products (collective asset management plans, single asset management plans), public fund products, corporate asset securitization products, etc., managed by securities companies and their asset management subsidiaries.
As of the end of the first quarter of 2024, the management asset scale of securities broker asset management was approximately 7.96 trillion yuan, which is basically the same as the end of 2023, with a slight increase of about 0.1 trillion yuan, and a contraction of 0.85 trillion yuan compared to the end of 2022.
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In terms of business structure, the scale of private asset management products of securities brokers contracted in 2023, while the scale of public fund business increased slightly.
As of the end of the first quarter of 2024, the scale of private asset management products, public fund products, and corporate asset securitization products in securities broker asset management products were 5.35 trillion yuan, 0.77 trillion yuan, and 1.84 trillion yuan, respectively, which were increased by 0.05 trillion yuan, 0.02 trillion yuan, and 0.03 trillion yuan compared to the end of 2023, and decreased by 0.93 trillion yuan, increased by 0.04 trillion yuan, and increased by 0.04 trillion yuan compared to the end of 2022.
Regarding the level of returns, considering the variety of securities broker asset management products, we choose the returns of the relatively larger collective asset management products as a representative for examination.
According to the data collected by Wind, in 2023, the median returns of fixed-income, equity, and hybrid products in the collective asset management of securities brokers were 6.33%, 0.56%, and -6.75%, respectively, and the average and median returns of the relevant products were roughly equivalent.
Affected by the continuous transformation of the business, fluctuations in the capital market, and other factors, the net income of the asset management business of securities companies in 2023 declined compared to 2022.
According to the statistics of the Securities Association, the net income of the asset management business of 145 securities companies in 2023 was 22.479 billion yuan, a decrease of 17.05% compared to the end of 2022, and the proportion of asset management business revenue in the operating income of securities companies decreased by 1.32 percentage points to 5.54% compared to 2022.
In 2023, the approval process for the licenses of securities broker asset management subsidiaries accelerated, and each securities broker asset management subsidiary actively applied for public fund business qualifications to expand the scope of the company's business transformation.
On May 20, 2022, the China Securities Regulatory Commission (CSRC) issued the "Regulations on the Supervision and Administration of Publicly Raised Securities Investment Fund Managers" (CSRC Order No.
198), Article 2 stipulates: "The public fund manager shall be a fund management company or other asset management institutions (hereinafter referred to as "other public fund managers") that have obtained the qualification for public fund management business approved by the China Securities Regulatory Commission (hereinafter referred to as "CSRC")...
The other asset management institutions referred to in these regulations include securities company asset management subsidiaries, insurance asset management companies, commercial bank wealth management subsidiaries, institutions that are engaged in the management of non-publicly raised securities investment funds and are registered with the China Securities Investment Fund Industry Association (hereinafter referred to as "Fund Industry Association"), and other institutions stipulated by the CSRC."
As a result, securities companies actively apply for asset management subsidiary licenses to become the foundation of the transformation of securities broker asset management business.
In 2023, the asset management subsidiaries of Great Wall Securities, Guolian Securities, Huaan Securities, Guoxin Securities, and Huafu Securities were approved.
At the end of 2023, a total of 30 securities company subsidiaries were established or approved in the industry.
Among the securities company subsidiaries, 2 securities broker asset management subsidiaries obtained public fund business qualifications in 2023, and it is expected that the number of securities company subsidiaries obtaining public fund business qualifications will further increase in the future.
In 2023, China Merchants Asset Management and Xingye Asset Management were approved for public fund business management qualifications.
As of the end of 2023, a total of 14 securities companies and their asset management subsidiaries obtained public fund business management qualifications in the securities broker asset management industry.
(II) Private Asset Management Business: Scale Continues to Decrease In 2023, the overall scale of the securities broker private asset management industry continued to decrease.
In 2023, the overall scale of the private asset management industry was 12.41 trillion yuan, a decrease of 1.9 trillion yuan compared to the end of 2022.
In terms of structure, at the end of 2023, the scale of private asset management products issued by securities broker asset management, securities company private subsidiaries, fund companies, fund subsidiaries, and futures companies and their asset management subsidiaries was 5.30 trillion yuan, 0.62 trillion yuan, 4.77 trillion yuan, 1.43 trillion yuan, and 0.27 trillion yuan, respectively, accounting for 42.75%, 5.00%, 38.45%, 11.50%, and 2.21% of the industry's overall scale, respectively, a decrease of 0.98 trillion yuan, an increase of 0.03 trillion yuan, a decrease of 0.43 trillion yuan, a decrease of 0.49 trillion yuan, and a decrease of 0.04 trillion yuan compared to the end of 2022, respectively.
From January to April 2024, the overall scale of the private asset management industry remained basically stable compared to the end of the previous year, and it is expected that the scale of the industry will gradually stabilize with a narrowing decline in 2024.
At the end of April 2024, the overall scale of the private asset management industry was 12.65 trillion yuan, an increase of 0.24 trillion yuan compared to the end of 2023.
Among them, the scale of securities broker asset management was 5.64 trillion yuan, an increase of 0.34 trillion yuan compared to the end of 2023.
Affected by factors such as financial market fluctuations, the scale of many products contracted in 2023.
Affected by the continuous decline of bond market yields in the first quarter of 2024, the scale of fixed-income products stabilized and rebounded.
At the end of 2023, the scale of collective asset management plans and single asset management plans of securities broker asset management was 2.59 trillion yuan and 2.71 trillion yuan, respectively, a decrease of 0.59 trillion yuan and 0.39 trillion yuan compared to the end of 2022.
In terms of product types, at the end of 2023, the scale of equity, fixed-income, commodity and financial derivative, and hybrid products was 0.47 trillion yuan, 4.27 trillion yuan, 0.04 trillion yuan, and 0.53 trillion yuan, respectively, a decrease of 0.06 trillion yuan, 0.85 trillion yuan, an increase of 0.01 trillion yuan, and a decrease of 0.08 trillion yuan compared to the end of 2022.
In the first quarter of 2024, affected by the performance of the bond market, the scale of fixed-income products stabilized and rebounded slightly.
At the end of April 2024, the scale of fixed-income products was 4.58 trillion yuan, an increase of 0.31 trillion yuan compared to the end of 2023.
The scale of newly filed private asset management products of securities broker asset management in 2023 was mainly collective asset management plans, and the business actively transformed towards active management.
In terms of product types, securities broker asset management mainly focused on fixed-income and hybrid products.
In 2023, the total scale of newly filed private asset management products of securities broker asset management was 302.448 billion yuan, of which collective asset management plans accounted for about 70%, and single asset management plans accounted for about 30%, indicating that the private asset management business of securities broker asset management was transforming towards active management.
In terms of product types, looking at the number of filings, in 2023, the number of filings passed for securities private asset management products was 484 for equity, 3,381 for fixed-income, 217 for commodity and financial derivatives, and 1,876 for hybrid.
(III) Securities Broker Asset Management Transformation to Public Fund: Debt Funds as a Driving Product In 2023, the scale of public fund business issued by securities broker asset management subsidiaries remained basically stable, with debt funds contributing the main incremental scale.
In 2023, a total of 14 securities companies and their asset management subsidiaries obtained qualifications to carry out public fund business, among which 12 institutions disclosed their public fund business scale and structure.
At the end of 2023, the net value of the public fund business scale of the 12 securities broker asset management subsidiaries was 746.67 billion yuan, an increase of 19.942 billion yuan compared to the end of 2022.
In terms of product structure, at the end of 2023, the net value proportion of money market funds, equity funds, hybrid funds, and bond funds was 24.11%, 1.10%, 20.53%, and 51.86%, respectively.
Debt funds are the main products for securities companies and their asset management subsidiaries to develop public fund business.
Looking at the change in the net value of product scale, the scale of public fund business of securities broker asset management in 2023 was mainly contributed by debt funds.
At the end of 2023, the net value of money market funds, equity funds, hybrid funds, and bond public fund products issued by securities broker asset management subsidiaries decreased by 10.519 billion yuan, increased by 2.481 billion yuan, decreased by 37.849 billion yuan, and increased by 66.589 billion yuan compared to the end of 2022, respectively.
Looking at the development of public fund business of securities broker asset management subsidiaries, there is a differentiation in scale among institutions.
In 2023, the public fund business scale of institutions such as Shanzheng Asset Management, Guotai Junan Asset Management, and Caitong Asset Management increased compared to the end of 2022.
Looking at the scale, at the end of the first quarter of 2024, the net value of public fund business scale of Dongzheng Asset Management, Bank of China Securities, Caitong Asset Management, and Huatai Securities Asset Management exceeded 100 billion yuan.
Looking at the scale change, at the end of 2023, the net value of business scale of Shanzheng Asset Management, Guotai Junan Asset Management, Caitong Asset Management, and Bohai Huijin increased significantly compared to the end of 2022, increasing by 12.314 billion yuan, 9.331 billion yuan, 7.792 billion yuan, and 6.668 billion yuan to 29.961 billion yuan, 53.76 billion yuan, 114.37 billion yuan, and 19.743 billion yuan, respectively.
At the same time, the public fund business scale of institutions such as China Merchants Asset Management and Dongzheng Asset Management contracted.It should be noted that there are certain differences in the focus of public fund business among different securities firms and asset management institutions.
Looking at the scale of various products issued by securities firm asset management subsidiaries at the end of 2023, in addition to vigorously developing bond funds, some institutions are also promoting the development of other products.
For instance, China Merchants Asset Management and Huatai Securities Asset Management have focused on money market funds, with the scale of these funds accounting for approximately 98.21% and 76.96% respectively; Dongzheng Asset Management and Zhongtai Asset Management have focused on hybrid funds, with the scale of these public hybrid funds accounting for approximately 60.17% and 40.29% respectively; Guotai Junan Asset Management has a more balanced product layout, with the scale of money market type, equity type, hybrid type, and bond type accounting for 29.75%, 7.53%, 12.09%, and 36.14% respectively.
(IV) Corporate asset securitization business: The proportion of REITs products increases.
Securities firms pay attention to the development of specialized asset management business and are the main force in managing corporate asset securitization products.
According to the China Securities Investment Fund Association's "China Securities Investment Fund Industry Annual Report (2023)", by the end of 2022, there were 122 institutions managing corporate asset securitization products, including 85 securities firms and their asset management subsidiaries, 35 fund subsidiaries, and 2 trust companies.
In terms of the scale of existing businesses, by the end of 2023, the scale of business existing for securities firms, fund subsidiaries, and trust companies was 1.81096 trillion yuan, 111.227 billion yuan, and 1.668 billion yuan, respectively, accounting for 94.13%, 5.78%, and 0.09%, respectively, an increase of 0.90%, a decrease of 26.56%, and a decrease of 7.23% year-on-year from the end of 2022.
Corporate asset securitization products are mainly debt-based, with the proportion of REITs products gradually increasing.
Looking at the existing scale, by the end of 2023, debt-based, future operating income-based, REITs, and other types of corporate asset securitization products accounted for 76.93%, 7.63%, 15.26%, and 0.18%, respectively.
Looking at the changes in the scale structure, the proportion of REITs products has significantly increased in 2023.
In the first quarter of 2024, the proportion of REITs products was about 17.13%, an increase of 4.37 percentage points compared to the same period in 2023.
Some securities firm asset management focuses on specialized asset management business, and the average monthly scale of corporate asset securitization business in 2023 has increased significantly.
According to the quarterly top 20 institutions disclosed by the China Securities Investment Fund Association, at the end of the first quarter of 2024, CITIC Securities, CITIC Construction Investment Securities, Huatai Securities Asset Management, Ping An Securities, Guotai Junan Asset Management, and CICC's average monthly scale of corporate asset securitization business exceeded 100 billion yuan.
Among the institutions that disclosed data, in 2023, CITIC Construction Investment, Guotai Junan Asset Management, Ping An Securities, and Guolian Securities had the largest increase in the average monthly scale of business compared to 2022, increasing by 39.5 billion yuan, 24.4 billion yuan, 10.8 billion yuan, and 10.7 billion yuan to 160.6 billion yuan, 156.4 billion yuan, 172.1 billion yuan, and 33.3 billion yuan, respectively.
(V) Outlook for the development of securities firm asset management in 2023.
In 2023, the structure of securities firm asset management business has been deepening, gradually enhancing active management capabilities, and continuously transforming towards public fund business and specialized asset management business.
In combination with the platform of securities firms and their own endowments, securities firm asset management is exploring a differentiated development direction.
In recent years, the overall scale of private asset management products in securities firm asset management has been declining, continuously rectifying channel business and other products that do not meet the requirements of the "New Asset Management Regulations" and its supporting documents.
Coupled with the intensified fluctuations in the capital market and the lack of significant increase in the allocation needs of institutional investors, the issuance of new products by securities firm asset management faces many obstacles.
Finding breakthroughs in scale expansion and business transformation is a common challenge faced by the securities firm asset management industry in recent years.
Vigorously developing public fund business and specialized asset management business has also become the development trend of the industry transformation.
In 2023, the scale of public fund business and corporate asset securitization business of securities firm asset management is basically the same as in 2022, and there is potential for further expansion in the future.
The in-depth development of related businesses requires securities firm asset management to further deepen strategic layout, enhance group collaboration, promote channel transformation, and improve investment research capabilities.
The public fund business of securities firm asset management is coordinated with the development strategy of the securities firm's investment advisory system, highlighting characteristic products, and expanding the retail customer channel.
In terms of channels, securities firm asset management has long been mainly private products, and the customer structure is mainly institutional customers.
According to the statistics of the China Securities Investment Fund Association, in 2022, the direct investors of private products of securities firm asset management, bank wealth management funds, and bank's own funds accounted for 48.79% and 20.45%, respectively, and the funds of residents only accounted for 11.05%.
Securities firm asset management faces the situation of insufficient accumulation of retail customer channels when developing public fund business.
Therefore, in the future, when securities firm asset management institutions develop public fund business, they should actively integrate into the group's investment advisory system construction, coordinate with the sales channels of the parent securities firm, and expand the retail end entrance.
On the product side, on the one hand, securities firm asset management institutions continue to improve their own investment capabilities and form a spectrum of characteristic products.
For example, some actively managed equity funds of Dongzheng Asset Management, Zhongtai Asset Management, and Huatai Securities Asset Management have performed relatively stable in recent years; on the other hand, based on the development trend of investment advisory business, securities firm asset management issues index products, FOF investments, etc.
The specialized asset management business of securities firm asset management can coordinate with the resources of the securities firm's investment banking business, explore the financing needs of the real economy, and provide comprehensive financial services.
The securities firm asset management business leverages the advantages of securities firms in asset excavation, pricing, sales, and other aspects to provide comprehensive financial services similar to investment banking, and further expand the financing channels for real enterprises.
For example, in recent years, Haitong Asset Management has established a communication and cooperation mechanism with Haitong Securities' bond financing line, forming an asset securitization business cooperation and service model of "Haitong Asset Management as the plan manager + Haitong Securities as the sales institution", focusing on exploring the market demand for asset securitization of basic assets such as accounts receivable, financing leases, and commercial property mortgage loans.
Overseas asset management: Current trends and historical lessons (I) Review of the development of the global asset management industry in 2023.
In 2023, the overall scale of the global asset management industry recovered and expanded compared to 2022, but the overall industry profit decreased year-on-year.
According to the report released by BCG, by the end of 2023, the global asset management industry managed assets of 118.70 trillion US dollars, a year-on-year increase of 12.00%, and the growth rate recovered compared to 2022, with a net inflow of 2.10 trillion US dollars for the year.
Looking at the profit performance, the industry is facing significant pressure on revenue growth while also facing the problem of cost rigidity.
In 2023, it is expected that the global asset management industry's operating income will increase by 0.20% year-on-year, while costs will increase by about 4.30% year-on-year, and net profit will decrease by about 8.10% year-on-year.
The change in the profit situation of the global asset management industry is related to the trend of product structure adjustment in the global asset management industry in recent years.
In recent years, the scale of low-fee passive products has expanded rapidly, and the new products developed by asset management companies with investment costs are not attractive to funds, which leads to limited growth space for the revenue of asset management institutions.
Looking at the static scale, by the end of 2023, the management scale of the asset management industry in North America and Europe is relatively leading; and in 2023, the scale growth rate of the asset management industry in North America, Japan, and Australia is relatively high.
Looking at different regions, according to BCG statistics, by the end of 2023, the asset management scale in North America, Europe, Japan and Australia, Latin America, the Middle East and Africa, and the Asia-Pacific region (excluding Japan and Australia) is about 55.60 trillion US dollars, 25.30 trillion US dollars, 7.90 trillion US dollars, 2.30 trillion US dollars, 2.50 trillion US dollars, and 22.00 trillion US dollars, respectively, with a year-on-year increase of about 15.60%, 8.10%, 14.50%, 9.50%, 8.70%, and 5.30%.
Looking at different product categories, alternative asset management contributed more than half of the income, and the scale of low-fee passive strategy products continued to expand, while the proportion of actively managed strategy products stabilized.
By the end of 2023, the overall proportion of actively managed strategies was still the highest, with the core market active strategy (Active core) and emerging market active strategy (Active specialties) product scale accounting for a total of 45% of the global asset management industry's total scale, and the scale proportion is basically the same as the structure in 2022; while the scale proportion of passive strategy products is about 20%, which is nearly 1 percentage point higher than the end of 2022.
Looking at the income contribution, in 2023, although the scale of alternative asset management accounted for 20%, it contributed nearly 54% of the income, while the passive strategy products with a scale proportion of nearly 20% only contributed 4% of the income.
In the investment direction of alternative assets, the proportion of private equity increased, and the proportion of hedge funds decreased, with private equity and hedge funds contributing nearly 80% of the income.
Looking at the structure of alternative assets, the proportion of private equity (Private equity) is still the highest and the share continues to rise, while the proportion of hedge funds (Hedge funds) and real estate (Real estate) continues to decline.
By the end of 2023, private equity, real estate, and hedge funds accounted for about 45%, 19%, and 19%, respectively, an increase of about 4 percentage points, a decrease of about 1 percentage point, and a decrease of about 2 percentage points from the end of 2022.
Looking at the income contribution, in 2023, private equity and hedge funds contributed nearly 80% of the income, accounting for about 55% and 25%, respectively.Here is the translation of the provided text into English: From the development perspective of various institutions, funds are primarily flowing towards large institutions, leading to a continuous increase in institutional concentration.
Looking at the net fund flows of mutual funds, in 2023, approximately 95% of net funds of passive mutual funds flowed into the top ten institutions with the largest net inflows, an increase of about 4 percentage points from 2010; about 67% of net funds of active mutual funds flowed into the top ten institutions with the largest net inflows, an increase of about 12 percentage points from 2010.
(II) Development characteristics of the asset management market industry in overseas developed economies The asset management industry in developed regions has undergone years of development, achieving a leading scale in asset management business while also forming its own characteristics in related fields.
This section will focus on observing the development trends of the asset management industry in the United States, Europe, and Japan in recent years and the changes in business characteristics in 2023.
Firstly, in the U.S. asset management market, the allocation of equity-type products has shifted from mutual funds to ETFs.
In 2023, the main investment products of the U.S. asset management industry, including mutual funds and ETFs, saw net inflows of funds, with an increase in scale year-over-year, while the scale of private equity funds remained essentially flat.
In terms of product structure, mutual funds remain the most important investment product in the U.S. asset management market.
At the end of 2023, the scale of mutual funds and ETFs was $25.50 trillion and $8.10 trillion, respectively, an increase of 15.40% and 24.80% year-over-year compared to the end of 2022.
According to the U.S. Securities and Exchange Commission (SEC), as of the end of September 2023, the net assets of U.S. private equity funds totaled $14.10 trillion, essentially flat compared to the end of 2022.
In terms of mutual funds, equity-type mutual funds account for more than 50% of the scale, and the proportion of money market funds has increased.
At the end of 2023, the scale of equity-type, bond-type, hybrid-type, and money market mutual funds was $13.30 trillion, $4.70 trillion, $1.60 trillion, and $5.90 trillion, respectively, accounting for approximately 52.10%, 18.60%, 6.10%, and 23.20%, respectively.
Among them, the proportion of money market funds has been gradually increasing in recent years, and at the end of 2023, it further increased by 1.60 percentage points compared to the end of 2022.
In 2023, the net new funds of mutual funds increased positively compared to 2022, mainly flowing into money market funds.
According to a report by the Investment Company Institute (ICI), the net new funds of mutual funds in 2023 (new fund sales volume minus redemptions plus net trading volume) were $292 billion, while in 2022, it was a net outflow of $1.10 trillion.
Structurally, influenced by factors such as the rapid rise in short-term interest rates in the United States in 2023, money market funds saw a net new inflow of $957 billion, while equity-type, hybrid-type, and bond-type mutual funds, which are long-term mutual funds, saw a net outflow of $665 billion.
It is worth noting that within equity-type funds, investors have shifted their allocation from equity-type mutual funds to equity-type ETFs.
In 2023, U.S. equity-type mutual funds saw a total outflow of about $518 billion for the year.
However, the total scale of equity-type ETFs rebounded rapidly in 2023, with the scale of domestic large-cap ETFs, other domestic stock ETFs, and global/international stock ETFs increasing by $774 billion, $385 billion, and $215 billion, respectively, compared to the end of 2022.
From the perspective of capital, U.S. residents' funds have driven the scale of mutual funds to maintain a high base, with the main source of funds being residents' pension accounts.
In terms of capital structure, in 2023, the scale of mutual funds actually held by U.S. residents accounted for about 88.30% of the overall scale of mutual funds.
Among them, this proportion is about 94.80% in equity-type, hybrid-type, and bond-type mutual funds, and about 66.70% in money market funds.
In the structure of U.S. residents' allocation of mutual funds, about 52.70% comes from accounts such as IRAs and DC plans.
In terms of sales channels, U.S. residents mainly invest in mutual funds through professional investment advisors, discount brokers, or fund companies, with the main source of funds being residents' pension accounts.
From the perspective of sales channels, in 2023, among the ways U.S. residents invest in mutual funds outside of retirement plans, the proportion of those who allocate through professional investment advisors is nearly 48%, which is essentially flat compared to 2022.
Secondly, in the European asset management market, the net sales of bond-type funds and money market funds rebounded.
According to EFAMA estimates, the scale of European asset management at the end of September 2023 was approximately €28.60 trillion, a slight increase of about 3 percentage points compared to the end of 2022.
In terms of product structure, according to EFAMA classification, investment products are divided into investment funds and discretionary mandates, with the proportion of investment funds continuously increasing in recent years.
As of the end of 2022, the relevant proportion was about 56.50%.
It is expected that the product structure will continue to be dominated by investment funds in 2023.
The scale growth of investment funds in 2023 may be faster than the overall growth of managed asset scales.
At the end of 2023, the scale of investment funds was about €20.70 trillion, an increase of about 8.40% compared to the end of 2022.
In terms of product classification, UCITS products and AIFs products accounted for 63.30% and 36.20%, respectively.
In terms of regional distribution, the top five regions are Luxembourg, Ireland, Germany, France, and the United Kingdom, with management scale proportions of about 25.50%, 19.70%, 12.80%, 11.00%, and 9.20%, respectively.
Affected by the suspension of Europe's rapid interest rate hike policy and the maintenance of higher short-term interest rates, the net sales of bond-type funds and money funds in European investment funds rebounded significantly in 2023.
In terms of net asset scale, equity-type funds still maintain the first place in the proportion of investment funds, with equity-type, bond-type, multi-asset, and money market funds accounting for 31.80%, 19.80%, 19.10%, and 8.50%, respectively, at the end of 2023.
In terms of net sales volume, funds turned to bond-type and money market funds, with a net sales volume of €317 billion for investment funds in 2023, with net changes in the scale of equity-type, bond-type, multi-asset, and money market funds being -€19 billion, +€133 billion, -€55 billion, and +€179 billion, respectively.
On the one hand, Europe has long been in a low-interest-rate environment, and the overall European stock market has been favorable, with equity-type products maintaining a high share.
At the end of 2023, the scale proportion of equity-type funds in UCITS products was about 43.90%, an increase of 10.10 percentage points compared to the end of 2012.
In terms of product types, ETFs continue to be favored.
In 2023, the net sales volume of equity-type funds in UCITS products was €5 billion, with ETFs inflow of €101 billion and outflow of non-ETF equity-type funds of €96 billion.
On the other hand, since 2022, the European interest rate environment has changed rapidly, and the net sales volume of funds has undergone marginal changes.
First, during the rapid interest rate hike in 2022, the net sales volume of bond-type funds was in a state of net outflow, and in 2023, after the rapid interest rate hike was paused and a rate cut expectation emerged, funds gradually flowed back to bond-type funds.
The net sales volume of bond-type funds in 2022 and 2023 were -€141 billion and +€133 billion, respectively.
Second, after the short-term interest rates increased, funds marginally flowed towards money-type funds.
In 2023, the share of individual investors in investment funds increased compared to the end of 2022, while the proportion of insurance and pension institutions decreased.
Looking at the overall investor structure of managed assets, the proportion of individual investors in investment funds is higher than that in discretionary mandates.
Nearly 95% of discretionary mandates are institutional investors such as pension institutions and insurance companies.
Looking at the investor structure of investment funds, at the end of 2023, individual investors and insurance and pension institutions accounted for 24.10% and 38.90%, respectively, with increases of 0.70 percentage points and a decrease of 1.10 percentage points, respectively, compared to the end of 2022.
Thirdly, in the Japanese asset management market, the central bank's entry into the market to purchase ETFs has promoted the development of equity-type investment trusts.
Looking at the larger product categories, Japanese investment trust products can be divided into two types: Contractual Type or Investment Trust and Investment Companies.
The participants in Contractual Type investment trusts include four roles: trust investors (also beneficiaries), distribution companies, investment trust management companies, and trust companies.
Investors purchase trust shares through distribution companies to obtain trust beneficiary rights and are entitled to the profits generated from the operation of the trust property.
The manager accepts the entrustment of investors to manage the trust property and issues trading instructions to the trust company, which is responsible for custody of the trust assets and executes the trading instructions issued by the investment trust management company.
As of the end of 2023, the net assets under management of the Japanese investment trust industry were 326 trillion yen.
Among them, the net assets under management of contractual public trust were 197 trillion yen, contractual private trust were 113 trillion yen, and corporate trust assets were 16 trillion yen, of which 98.97% were Real Estate Investment Trusts (Reits).
Since the collapse of the Japanese stock market bubble in 1990, the scale change of Japanese equity-type investment trusts can be divided into three stages.
Financial system reform, global stock market trends, and central bank entry into the stock market are the three main factors affecting the expansion pace of Japanese equity-type investment trusts.In recent years, the synchronized improvement of domestic and international stock markets in Japan, along with the Bank of Japan's entry into the market to purchase ETFs, has driven the development of Japanese equity investment trusts.
Between 2013 and 2023, the scale of Japanese equity investment trusts expanded rapidly, with net assets under management increasing by 207.08 trillion yen.
The scale of publicly offered additional non-ETFs, publicly offered additional ETFs, and privately offered equity investment trusts grew in tandem, with cumulative increases of 58.36 trillion yen, 70.72 trillion yen, and 78.65 trillion yen, respectively.
Among them, a significant part of the increase in publicly offered additional ETFs came from the contribution of the Bank of Japan.
From 2013 to 2023, the Bank of Japan cumulatively increased its holdings of ETFs by 35.72 trillion yen, accounting for 50.51% of the total increase in Japanese equity ETFs during the same period.
By the end of 2023, the total scale of ETFs held by the Bank of Japan was 37.19 trillion yen, accounting for 52.58% of the total scale of Japanese equity ETFs.
In the near term, Japanese investors have shown a preference for open-ended products that allow for free subscription and redemption, and actively managed investment trusts have shown more vitality compared to index products.
By the end of 2023, excluding ETFs held by the central bank, the distribution structure of Japanese equity investment trusts was as follows: private equity (accounting for 43.27%), publicly offered additional non-ETFs (accounting for 41.63%), publicly offered additional ETFs (excluding central bank holdings, accounting for 14.86%), and publicly offered unit type (accounting for 0.25%).
Among the publicly offered products, the scale of index products was 68.80 trillion yen (excluding central bank holdings), accounting for 37.94%, and the scale of actively managed products was 112.55 trillion yen, accounting for 62.06%.
From 2010 to 2022, the proportion of index-type products remained below 30% for a long time, and actively managed types were the mainstream of publicly offered products.
This may be because a large part of the assets of Japanese equity investment trusts need to be allocated overseas, which cannot be achieved through indexation, thus limiting the development of index products.
(III) Learning from the Development Trends of Overseas Asset Management From the development experience of overseas asset management markets, adjustments in external macro and monetary policy environments will affect the structure of asset allocation, and asset management institutions will lay out multi-level and multi-line product lines to cope with trend changes.
For a considerable period, regions such as the United States, Europe, and Japan were in a low-interest-rate environment, and investors had a preference for funds that strive for high returns.
The layout of fund products in these regions showed equity expansion, and the structure of alternative assets and exploration of overseas assets changed.
Some asset management institutions have discovered niche asset areas from the asset end and have rapidly grown to form competitive business strength during this period.
For example, the Capital Group in the United States focuses on the construction of sovereign equity funds.
By the end of 2023, the Capital Group's asset management scale was approximately $2.13 trillion, with actively managed equity funds accounting for nearly 70%.
For example, the Blackstone Group in the United States has explored alternative investment opportunities, forming multiple business lines and investment strategies such as private equity funds, real estate funds, and hedge funds.
By the end of 2023, Blackstone's asset management scale was approximately $1.04 trillion, with hedge funds, credit and insurance, private equity, and real estate funds totaling $80.3 billion, $318.9 billion, $304 billion, and $336.9 billion, respectively.
In the past two years, there have been significant changes in the global interest rate environment, bond-type products have experienced scale fluctuations, and the attractiveness of money market funds has increased.
Asset management institutions with a full range of products can better cope with product structure adjustments and prevent the loss of customer funds.
Looking at the situation of Charles Schwab, Charles Schwab provides multi-level financial investment products with a broad distribution of product lines.
Affected by the U.S. interest rate hike cycle, which affects the returns of bond-type products, it has guided customers to increase their allocation to money-type funds and equity products, thereby driving the net inflow of fund trading scale and ensuring the stable operation of Charles Schwab's personal financial service system.
By the end of 2023, Charles Schwab's asset management scale was $8.5 trillion, a year-on-year increase of 21%.
Low-cost passive products are still favored by investors, and the expansion of product scales such as ETFs has driven the concentration of asset management institutions' scales.
From the development trend of the global asset management industry, passive strategies were still favored by investors in 2023, and the scale of ETFs in mature markets such as the United States, Europe, and Japan has further increased.
Among the top 10 asset management institutions in the United States, the proportion of mutual funds and ETFs has gradually increased, with a related proportion of about 56% in 2023, an increase of about 13 percentage points from 2015.
At the same time, the continuous decline in fund fees has a negative impact on institutional profits, or may reduce the innovation momentum of institutional products.
Overseas mature asset management markets are supported by long-term stable sources of funds, expanding the share of pension funds, institutional funds, and government funds, and cultivating professional investment advisory institutions to guide individual investors to invest.
Looking at the investor structure in the United States, Europe, and Japan, pension funds, as well as institutional funds and government funds, are the main components of the investor structure, guiding the market towards long-term stable investment allocation.
The asset management industry values the application of financial technology, and the mature application of scale effects helps to reduce costs and improve business profitability.
EFAMA's report reminds that the use of artificial intelligence and other technologies can effectively increase the productivity of the European asset management industry by 7% to 12%, which is reflected in multiple aspects such as investment management, investment operations, risk compliance, and channel marketing.
The Central Financial Work Conference, which ended in October 2023, proposed the requirements for doing a good job in five major articles of technology finance, green finance, inclusive finance, pension finance, and digital finance.
In recent years, against the backdrop of the rapid development of financial technology, domestic and foreign asset management industries have also been gradually exploring the use of technology to improve their own operational levels.
In terms of specific application methods, asset management institutions have gradually begun to explore increasing the use of programmatic trading, quantitative trading, and other methods to improve investment efficiency on the investment end.
On the fundraising end, intelligent investment advisors are also further optimizing the matching of investors' investment purposes with the fundraising of asset management products, which can improve the investment experience of investors while avoiding liquidity problems for open-ended asset management products in special environments.
This section will focus on the two relatively mature applications of programmatic trading and intelligent investment advisors, and look forward to the further enrichment of technology empowerment applications by asset management institutions in the future.
(1) Automated trading improves the investment efficiency of asset management products.
In recent years, with the expansion of the breadth and depth of information technology and electronic technology in the financial market, automated trading, algorithmic trading, and high-frequency trading have become the preferred trading methods for more and more financial institutions.
Looking at algorithmic trading as a specific method of automated trading, regulatory authorities in developed economies abroad have paid high attention and research to it.
Taking the European Union as an example, the Markets in Financial Instruments Directive II (MIFID II) implemented by the European Union in 2018 defines it.
MIFID II points out that financial instrument trading that automatically determines some or all elements of a financial instrument trading order through a computer algorithm (such as whether to initiate an order, the time to initiate an order, the price of the order, the volume of the order, etc.
), and with little or no human intervention, is algorithmic trading.
It should be noted that MIFID II points out that the trading method that only selects the trading venue through a smart program, and the preset algorithm does not determine other trading elements (such as price, quantity, etc.
), does not belong to algorithmic trading.
Therefore, the Automated Order Routers (AORs) are not included in algorithmic trading, while the Smart Order Routers (SORs) are included in algorithmic trading.
In China, the China Securities Regulatory Commission (CSRC) clearly defined programmatic trading in the "Securities Market Programmatic Trading Management Regulations (Trial)" that was publicly solicited for opinions in April 2024 as the behavior of automatically generating or issuing trading instructions through computer programs for securities trading on stock exchanges.
The investors of programmatic trading include private equity funds, securities companies, public fund managers, insurance institutions, and other proprietary institutions and asset management institutions.
Looking at the application of automated trading such as algorithmic trading and high-frequency trading in the financial market, with the expansion of computer technology, the proportion of various automated trading in the European and American markets has reached or even exceeded more than 50% of the total trading volume.
In the stock market, the proportion of high-frequency trading in European and American stock markets has reached a high level 10 years ago.
According to the statistics of SEC staff Greig (2012), the proportion of high-frequency trading in the total trading volume of the U.S. stock market has risen from about 20% in 2005 to about 55% in 2010; the proportion of high-frequency trading in the total trading volume of the European stock market has risen from less than 5% in 2005 to about 40% in 2010.
With the passage of time, the proportion of algorithmic trading and high-frequency trading in the total trading volume of European and American stock markets has further expanded compared to 2010.
In futures and other derivative markets, the proportion of automated trading in some highly liquid products is even higher than in the stock market.
It can be seen from the above that automated trading in the CFTC context is algorithmic trading.
Haynes and Roberts, who work at the CFTC, studied the trading data of CME from November 12, 2012, to October 31, 2014, and found that the proportion of automated trading in foreign exchange derivatives reached 79.9%, and more than 60% of equity and interest rate derivative trading also came from automated trading.
30% to 50% of energy, precious metals, and agricultural product derivative trading also came from automated trading, and only some products with low trading volume had a lower proportion of automated trading.
The former chairman of the CFTC, Massad, also pointed out in his speech in 2015 that 67% of the trading volume of U.S. 10-year Treasury futures and 64% of Eurodollar futures in recent years came from automated trading.From the perspective of the advantages of algorithmic trading used by asset management institutions, it not only helps these institutions reduce trading costs and improve efficiency but also enhances the overall efficiency of the market.
After determining the corresponding procedures in advance, algorithmic trading and high-frequency trading do not require excessive human intervention and can automatically perform operations such as submission, declaration, and execution of trades.
Consequently, this can reduce the number of front, middle, and back office personnel needed for trade completion and further enhance the efficiency of the entire trading process through electronic substitution, reducing the operational risks that potential "fat finger" errors could cause.
Therefore, many financial institutions are willing to try to replace manual operations with algorithmic trading and other methods on some trading platforms.
It is worth noting that an increasing number of asset management institutions are also using programmatic trading to seize potential arbitrage opportunities across markets, which often fleetingly appear and disappear.
This requires programmatic automated trading systems to monitor and grasp these opportunities.
Many academic studies have previously suggested that under normal market conditions, algorithmic trading and high-frequency trading can enhance market liquidity.
At the same time, the use of algorithmic and high-frequency trading enables financial institutions to more quickly and accurately identify stock prices, while eliminating potential price differences and arbitrage spaces between different markets.
However, it should be pointed out that while various automated trading methods have many advantages, if they are not effectively regulated and risk-prevented in a timely manner according to their characteristics, potential risks may also arise.
The most typical potential risk is that if multiple institutions adopt the same strategy or algorithm, it may increase the market's one-way volatility in special market environments.
From 2010 to 2020, the global financial market has experienced several well-known flash crashes or significant turbulence events, including the U.S. stock market flash crash on May 6, 2010, the flash crash in the U.S. stock market on April 23, 2013, due to the theft of media social media accounts and the release of false information, the flash crash in the yield of U.S. 10-year Treasury bonds on October 15, 2014, the significant fluctuation of the Swiss franc on January 15, 2015, the pound flash crash on October 6, 2016, and the significant turbulence in the global financial market in March 2020.
Behind these events, there is more or less a potential impact of the same quantitative trading strategy working in the same direction.
At the beginning of 2024, some private equity institutions in China have also suffered significant negative impacts due to market fluctuations using DMA strategies, and even produced a feedback spiral effect on market fluctuations.
Against this backdrop, the China Securities Regulatory Commission has also sought public opinions on the "Regulations on the Management of Programmatic Trading in the Securities Market (Trial)" to better regulate various automated trading and promote the steady and sustainable development of asset management institutions.
Intelligent investment advisory optimizes the matching of fundraising sources.
Currently, the broad investment advisory business in China actually includes two categories: one is investment advisory services for asset management institutions and products, providing operational suggestions for their investment in asset management products; the other is the business of providing investment advisory services for retail or corporate customers to invest in financial assets with surplus funds.
Specifically, in the investment advisory business for retail and corporate customers in China, there are clear regulatory rules for securities investment advisory and fund investment advisory.
In current practice in China, intelligent investment advisory is generally based on the service platform provided by fund investment advisory.
It is worth noting that the scope of investment targets for securities investment advisory and fund investment advisory is different, and more importantly, securities investment advisory can only provide investment advice to customers and assist them in making investment decisions, and cannot directly operate investments on behalf of customers for the time being, while fund investment advisory can to some extent act on behalf of customers to make investment decisions.
Therefore, the application scenario of intelligent investment advisory business with higher intelligence in China is mainly fund investment advisory.
The key to the rapid development of intelligent investment advisory in China lies in the gradual development of the "buyer's investment advisory" model in China.
For a long time, the investment advisory business model in China has been the "seller's investment advisory".
Under the "seller's investment advisory" model, the profit of the investment advisory business comes from the income of product agency fees, and the performance assessment standards of sales and service personnel are linked to the sales scale of specific products.
Correspondingly, the fees charged under the "buyer's investment advisory" model mainly come from financial product investors, such as banks that can charge a service fee based on a certain percentage of the total assets of customers entrusted to them for investment advisory services.
Therefore, "buyer's investment advisory" can better stand on the customer's position to provide investment advice.
Under the "seller's investment advisory" model, the incentives of sales institutions come more from the product creators, and even if intelligent investment advisory is practiced under this model, due to the anthropogenicity of system elements and indicator settings, the intelligent investment advisory system may find it difficult to objectively combine and configure products in the product library according to the characteristics and needs of customers on the investment side, and cannot fully exert the advantage of using the intelligent system to judge customer needs.
Under the "buyer's investment advisory" model, since sales institutions stand more on the customer's side, they will also be more motivated to objectively provide product combination suggestions to investors in the process of using intelligent investment advisory systems, thereby ensuring the maximization of the interests of financial consumers.
Therefore, the further development of China's intelligent investment advisory system depends on the promotion and deepening of the "buyer's investment advisory" model under the fund investment advisory pilot.
China's earlier intelligent investment advisory began in 2016, and some banks, securities companies, fund companies, and fund sales institutions have gradually started to offer intelligent investment advisory services, with typical representatives such as "Anxin Investment Advisory" and "Help You Invest".
After the "Pilot Notice" was issued in 2019, the pilot work of fund investment advisory business officially started, and with the "buyer's investment advisory" practice advocated by the fund investment advisory pilot, the development of intelligent investment advisory has gradually accelerated.
As of the end of March 2023, the asset scale of fund investment advisory services was 146.4 billion yuan, with a total of 5.24 million customers, with individual investors with less than 100,000 yuan accounting for 94%, and most of the assets were served by intelligent investment advisory.
Looking at the specific process, the process of carrying out intelligent investment advisory business by different types of institutions in China is similar.
It can usually be divided into the following steps: First, collect investor data.
Before providing services to investors, intelligent investment advisory products will collect investor data through questionnaires.
Most of the time, it focuses on aspects such as total investment, expected returns, and investment years.
Second, determine the investment plan.
Based on investor data, after determining their investment needs and risk preferences, the investment plan is determined according to the big data model, and the details of the investment plan are presented to investors, including the configuration, historical performance, and the best-case scenario returns and worst-case scenario losses.
Third, automatic rebalancing.
Investment advisory institutions predict the price trend of various assets according to the model, and further carry out automatic rebalancing, including operations such as subscription/purchase, redemption, share conversion, setting dividend methods, and portfolio rebalancing of funds within the investment portfolio, to achieve the predetermined investment return rate.
It is worth noting that Chinese regulatory authorities have guided intelligent investment advisory businesses to adopt a lower turnover rate.
The "Draft for Comments" points out: "Fund investment advisory institutions should adhere to the concept of long-term investment and effectively control the turnover rate of fund portfolio strategies."
Looking at the charging model, most institutions in China charge a certain rate based on the scale of customer asset management for intelligent investment advisory services, and some institutions customize charges based on investor characteristics, showing a "thousand people and a thousand faces" feature.
Taking a smart investment advisory product of a third-party fund sales institution as an example, its fund investment advisory service fee is calculated daily, and the service fee is charged at a certain rate based on the scale of asset management.
For different investors, this intelligent investment advisory product will set different rates.
It should be pointed out that using intelligent investment advisory systems on the fundraising side can also enhance the matching of investor investment purposes and asset management product investment strategies, thereby better achieving the goal of "selling the right product to the right person."
By achieving this goal, it can also further enhance the stability of investor funds invested in asset management products, thereby avoiding liquidity risks for asset management products when the market fluctuates.
(III) The prospect of further application of technology in the future asset management industry.
With the accelerated development of digital finance, the application of financial technology in various fields and segmented business processes of China's asset management industry will not only expand in scope but also have further deepening space.
First, the use of large language models and AI can improve the efficiency of the investment research system.
In recent years, the use of large language models and AI technology has made great progress, and it is also possible for asset management institutions to use them in the investment research process.
From the practice, some financial institutions have used large language models or AI systems to empower traders or investment managers to summarize various investment research reports and analyze corporate financial statements, taking on repetitive and transactional tasks.
However, it should be noted that the use of large models and AI still has certain limitations.
Taking large models as an example, their "generation" ability is still based on learning existing rules or "corpora," and their own complex reasoning ability is still relatively weak.
If there is a deviation in the data fed to it or in the training process, it is easy to lead to the model "talking nonsense seriously," so human supervision and intervention are still needed at present to make the best use of AI.
Second, the automated risk management and monitoring system helps to intelligentize risk control.
With the increasingly close connection between global financial markets, the speed of information and fluctuation transmission between different markets is also accelerating, and the difficulty of relying solely on human judgment and decision-making to prevent potential risks is also increasing.
Therefore, automated risk management, monitoring, and even execution systems will become a necessity for various asset management institutions and financial institutions in the future.Thirdly, the intelligent investment advisory system should be upgraded to accompany the entire lifecycle of the client's investment journey.
Currently, the intelligent investment advisory systems adopted by institutions in our country are mostly focused on guiding investors during the investment process to align their investment direction with their investment goals and risk tolerance, which is the fundraising process of asset management products.
However, from the experience of overseas markets, the intelligent investment advisory system is continuously expanding to cover the entire lifecycle of asset management products and even customer service.
Overseas intelligent investment advisory systems have begun to explore the full process from customer consultation to holding and rebalancing of assets, and even continuous product recommendations and information retention after the customer redeems.
By upgrading the intelligent investment advisory system to accompany the entire lifecycle of the client's investment journey, it not only enhances the customer experience centered around the client but also helps asset management institutions to more keenly grasp the investment tendencies and preferences of the clients, thereby designing asset management products that meet the current needs of the clients in a timely manner.
Fourthly, the upgrade from automated trading to intelligent decision-making and intelligent investment.
The automated trading systems currently used by asset management institutions and financial institutions are mostly still at the level of automatically conducting trades when certain clear trigger thresholds or operational procedures are triggered.
There has not yet been an implementation of intelligent decision-making and intelligent investment that learns market characteristics and actively generates and evolves investment strategies through AI and machine learning.
With the development of future technological levels, it is possible that asset management institutions will deeply utilize machine learning and other methods for intelligent decision-making and intelligent investment.
However, it should be noted that due to the limitations of computer systems and programs, as well as considerations of ethics and law, the relevant intelligent decision-making and intelligent investment systems should still maintain a certain level of human intervention and supervision.