Noah Wealth's Kun-Chai Chen: Six Trends in Wealth Management Insights for 2022

The reason for the above recommendation is that we are very worried about the macroeconomic tail risk, as evidenced by the data on the percentage of loans of concern, non-performing loan ratio, and the size and proportion of loan write-offs of commercial banks. Against the backdrop of slowing economic growth, prolonged low interest rates, and declining return on capital, the high leverage model of short-term borrowing and long-term investment is unsustainable, which used to fuel the rapid growth of enterprises in the long term. The non-standard fixed-income products that provide off-balance-sheet financing also have their own concentration risk, and if a non-standard fixed-income product's term crosses the end of the transition period of the new rules for asset management, it is likely to be the "last stick".

This analysis is actually just respecting common sense, but few people take the initiative to speak, and investors often hold a fluke, do not believe that they will be the most unlucky last stick, so there are still a lot of investors holding a large number of real estate non-standard debt products, the risk of exposure is the probability of the event, just the time near and far the problem or the loss of the degree of size of the problem.

From the beginning of 2019, we have repeatedly emphasized the advantages of standardized asset investment, the first is diversification, the second is liquidity. We also had a default issue with a real estate bond, but that bond was a very small percentage of the overall bond portfolio fund, so the safety of the principal of the entire fund would not have been affected, whereas in the case of a non-standard debt product of that financing entity, the investor would have faced the possibility of losing all or most of the principal. The liquidity is also another major advantage of standardized assets, coupled with market price valuation, the risk can be reflected in a timely manner, and the disposal flexibility is relatively higher (just a matter of price). In addition, the same financing tool, bonds are on-balance sheet financing, in the order of debt repayment, prioritized over off-balance sheet financing (shadow banking).

The scale of non-standard fixed income and the investment demand behind it is up to tens of trillions of dollars, and the end of the transition period of the new rules of asset management will certainly generate a large demand for alternative products. In this regard, I would like to make a few suggestions for reference:

First, from off-balance sheet to on-balance sheet, from investing in non-standard debt products to investing in standardized bond products, i.e., bond funds, but the need to lower the expectation of return.

Second, appropriately increase the risk appetite, invest in "fixed income +" products. We have done a simulation of a selected public fund portfolio, in accordance with the proportion of 80% bond + 20% equity allocation, in the period from January 2017 to May 2021, the portfolio without dynamic adjustment of the case can achieve annualized return of 7.82%, annualized volatility of 3.56%, the maximum retracement of 3.07% (Risk Warning: the past performance of the fund does not predict its future performance).

Thirdly, on the basis of two traditional assets, namely stocks and bonds, we introduce open market alternative investment strategies, such as arbitrage, neutral, long/short, macro-hedging, managed futures, etc., and utilize a multi-strategy portfolio investment methodology to build solutions with different target return characteristics, such as stable, balanced, and active.

2. The full implementation of the registration system will revolutionize the investment pattern of the primary and secondary markets

The Central Economic Work Conference in 2021 proposed for the first time the "full implementation of the registration system for the issuance of shares", which was regarded by the market as a signal of the speed of the registration system reform. The full implementation of the registration system will revolutionize the investment pattern of the primary and secondary markets, which is mainly reflected in three aspects:

First of all, it is good for the primary and secondary market investment. Primary market private equity (PE) development and capital market reform is inseparable, can be compared to the Silicon Valley Venture Capital is active, inseparable from the birth of Nasdaq 40 years ago; the full implementation of the registration system, so that high-tech and high-growth companies continue to get the help of capital, but also to allow investors in both primary and secondary markets can share the value of growth. This supply-side reform initiatives, the significance of the secondary market is to "ask the canal where to get clear like this? The first is that the first time you have to go to the hospital, you have to go to the hospital to get the money.

Secondly, the metabolism of the secondary market will accelerate, and the exit mechanism will be strictly enforced. A healthy capital market will not just come in and out, the full implementation of the registration system will also change the past "shell" thinking, because the listing target is no longer a scarce resource, the core is no longer to protect the shell resources, but to create a fertile entrepreneurial innovation soil, to cultivate high-quality subjects. Then, the secondary market investors to focus on the risk of delisting, abandon those "shell resources" as the core of the so-called "event-driven" speculative behavior.

Thirdly, in the overall favorable background, the investment threshold of the primary and secondary markets will be further improved, relying on professional institutions to participate in them, will become the right choice for individual investors. In the primary market, investors should also have the insight of the track and the identification of racers, in the face of high-quality targets and counterparts, investment institutions also have their own competitiveness, three forces together, non-professional institutions; in the secondary market, the supply increases at the same time, the difficulty of choosing is also greatly improved, high growth also means a high degree of uncertainty, risk accompanied by opportunity, entrusted to professional institutions, diversified investment, will become the The only choice for the average individual investor.

3. The PE investment ecosystem is gradually optimized, and investor enthusiasm returns

The optimization of the PE investment ecosystem is first reflected in the exit, on the one hand, the full implementation of the registration system mentioned above, and on the other hand, the BeiJing Stock Exchange (the full name of the Beijing Stock Exchange). "), registered on September 3, 2021, is the first corporate stock exchange in China approved by the State Council, supervised and managed by the China Securities Regulatory Commission (CSRC), the service object is specialized, special and new small and medium-sized enterprises (SMEs), the positioning of which is different from the SSE and SZSE, and thus serves the full formation of a multi-level capital market at different stages of development and with different development characteristics, which is also beneficial to the The company's business is to provide services to the private equity investors in different stages of development, such as venture capital and growth investment.

The optimization of the PE investment ecosystem is also reflected in the synergy of the "S" (Secondary strategy of PE). 2020, July 2020, the State Council executive meeting decided to carry out a pilot project for the transfer of shares of equity investment and entrepreneurial investment in the regional equity market; 2020, September 2020, the State Council, in its reply In September 2020, the State Council in its approval clearly pointed out that it "supports the establishment of a private equity transfer platform under the framework of the existing private equity fund laws and regulations to broaden the exit channels of private equity and venture capital".

December 10, 2020, the China Securities Regulatory Commission (CSRC) formally approved and agreed to carry out a pilot project for the transfer of shares of equity investment and venture capital in the Beijing Equity Exchange Center.

In 2021, following the Beijing Equity Exchange Center to become the first share transfer pilot unit, is the year in November, the China Securities Regulatory Commission approved and agreed to carry out the pilot transfer of private equity and venture capital shares in the regional equity market in Shanghai, the share transfer pilot will be carried out relying on the Shanghai Equity Custodian and Exchange Center, and gradually broaden the exit channels of private equity and venture capital to promote the development of private equity funds and the integration of regional equity markets. The pilot transfer of shares will be carried out by the Shanghai Equity Trust and Exchange Center, gradually expanding the exit channels for private equity and venture capital, promoting the integration of private equity funds and regional equity markets, and facilitating the smooth circulation of financial and industrial capital.

Beijing and Shanghai two economic and financial centers have launched PE S trading platform, which is of great significance. With the synergy of S, PE will be included in the investment portfolio by more institutional investors, and the proportion of allocation will be further enhanced, which will also optimize the investment performance of PE mother fund (including local government guided funds), and is conducive to allowing PE fund managers (GP) to be more focused on the investment, empowering the invested enterprises and creating value. We also see that because of the gradual optimization of the investment ecosystem, the enthusiasm of investors for PE investment has returned significantly.

4. Balanced allocation of absolute return in-depth

We observe that domestic HNWIs have two characteristics in asset allocation, one is heavy position in fixed-income products, the pursuit of stable and predictable 6-8%/year or 8-10%/year target return, in the past, more concentrated in the investment in non-standard fixed-income products; Secondly, heavy positions in equity assets, including PE in the primary market and equity funds in the secondary market. Overseas mature markets, including endowment funds, family offices and other institutional investors, will be a high proportion of the allocation of absolute return strategy, in the past did not get the attention of domestic investors; this type of strategy is the pursuit of low correlation with the investment performance of the secondary market equity assets, in the "rigid dividend era", it is clear that the survival of this strategy is quite harsh environment. The strategy seeks low correlation with equity assets in the secondary market.

However, with the breaking of the rigid exchange rate, and the uncertainty and high volatility of the capital market, investors are gradually recognizing the concentration risk of non-standard fixed income, which will magnify the degree of damage to credit risk; at the same time, a single equity long strategy is difficult to adapt to different market environments, and the experience of holding is not good. From the perspective of the whole and end game of wealth management, a new solution is needed, and balanced allocation is beginning to penetrate the hearts of investors.

Broadly speaking, balanced allocation is divided into three modes, one is a simple mixed investment model of stocks and bonds, such as one of the world's largest sovereign funds - Norwegian Petroleum Fund to take the 70/30 strategy, that is, 70% allocated to equity assets, 30% allocated to fixed-income assets; the second is a multi-strategy investment in the open market, the integrated The use of offensive (including stock long, index enhancement), robust (including bonds, market neutral, arbitrage, etc.), tail risk (including macro hedging, management of futures, long-short stock, etc.) three major categories of main strategies, eight sub-strategies, the pursuit of lower volatility in the case of a given target return, the more typical is the Gopher target strategy fund; Third, the endowment fund model, the introduction of illiquid alternative assets, the Third, the endowment fund model, the introduction of illiquid alternative assets, to build a multi-asset multi-strategy investment portfolio, more typical of the Yale Endowment Fund and Sequoia Capital Legacy Fund, of which the proportion of PE allocations is nearly 40%, is also a model that has been emulated by family offices around the world.

5. The transformation of the corporate treasury triggered a new demand

In recent years, not only has personal investment in finance suffered a variety of risks of mine, the listed company treasury as the representative of the corporate finance has also encountered risks of fraud, credit default, and more corporate treasury invested in P2P, the gold exchange, and other products, the cases are numerous. Therefore, in the context of the official implementation of the new regulations on asset management, entrepreneurs are thinking about personal wealth management at the same time, the corporate treasury also needs to transform, from the past pure pursuit of capital preservation and interest protection, towards standardization, net worth era. Combined with the practice of Noah Holdings, two suggestions for reference:

First, the enterprise treasurer to have the bottom position awareness. If you can't understand the investment logic and risk of the underlying assets, simply pursue the so-called "capital preservation", or worse, ask the financial institutions to issue the so-called "underwriting letter" (practice has proven that there is no legal effect), such a treasurer manager is actually irresponsible. The treasurer is actually irresponsible. The establishment of the bottom position awareness, first, to ensure the safety of the enterprise operating funds, and secondly, to understand the risk can not be eliminated, can only be decentralized. In terms of operation, the bottom of the money fund, bond funds, the integrated use of fixed income +, multi-strategy investment and other tools / products, to achieve a balance of security, liquidity and profitability of corporate cash management.

Secondly, with the help of enterprise service SaaS system, to enhance the treasury's ability to digital intelligence. In the case of Noah Holdings, for example, in 2021 the company's finance department put forward a demand for a public fund team to provide an operating system to help colleagues responsible for fund management to better screen money funds, bond funds and other public fund products, and to provide portfolio analysis functions to solve the regular reporting pain points and other issues. After the successful development of this system, we call it "Smile Treasury", which is located in the one-stop public fund trading platform tailored for institutional clients to enhance the digitalization and intelligence of the corporate treasury, and is now also open to corporate clients.

6. The concern for protection planning and wealth inheritance has risen significantly

At the end of the year, the law and tax experts are busy, from one side to validate the change in the concept of wealth of HNWIs, the concern for protection planning and wealth inheritance has risen significantly. The topics of entrepreneurs' dinners are often inseparable from double limits, double reductions, sky-high penalties, triple distribution, and corporate social responsibility. In the exchange process, the author gives the views and suggestions are:

For high net worth entrepreneurial groups, the first of the three allocations should be concerned about the secondary distribution, on the one hand, the burden of the enterprise level of taxes and fees will continue to reduce the need for enterprises to better fulfill their social responsibilities, on the other hand, the entrepreneurial groups to obtain a return on capital by factor inputs to the correct treatment of the property tax of the new era of property tax, the pilot real estate tax is one of them. One of them.

But in the context of the increase in the importance of property tax, around the charitable public welfare, family trust, insurance tools and other protection mechanisms will also be established, so entrepreneurs need to pay attention to the protection of the planning, the use of wealth inheritance tools, do a good job of wealth inheritance of the top design; at the same time, with the help of professional platforms, and actively engaged in charitable public welfare undertakings.

Anything in advance is a good idea, and anything not in advance is a bad idea. Let's step into 2022 and welcome the new era of wealth management.

Author: Chen Kuncai, Head of Client Group Development Center, Noah Holdings

Joined Noah's Wealth in 2010; in 2014, as one of the main persons in charge of Noah's Family Wealth Management Service, served as the general manager of Noah's Family Wealth Management Company Limited; authored "The Ark of Wealth", "The Way of Wealth: Asset Configuration Methodology", and other professional books