Recently, the "White Paper on Wealth Management Products over the Past Decade" (hereinafter referred to as the "White Paper") was released, providing a systematic review of China's wealth management market over the last ten years. Let us take a look at the highlights of the "White Paper." During the decade of wealth management development, which assets have been most favored by high-net-worth individuals?
Highlight 1: Significant increase in the proportion of financial products
The "White Paper" shows that in 2006, 70% of personal investable assets in China were held in cash and deposits, with nearly half of the remainder invested in real estate, while a small amount of capital market investment was primarily directed toward stocks and public mutual funds. By 2017, the proportion of cash and deposits in personal investable assets had fallen to 41%, while the proportion invested in financial assets had risen significantly to 35%.
In addition to traditional stocks, bonds, public mutual funds, bank wealth management products, and insurance, other domestic investments such as trusts, segregated fund accounts, brokerage asset management, and private equity, as well as offshore investments, have achieved breakthroughs from 0 to 1 and rapid development.
It is worth noting that by 2017, the proportion of personal assets allocated to real estate had increased by 6% compared to ten years ago. This shows that real estate remains a relatively important asset allocation method for wealthy individuals.
The proportion of financial products in Chinese private asset allocation has risen significantly
Highlight 2: Focus on increasing allocation to four types of financial assets
The "White Paper" points out that over the past decade, high-net-worth individuals have mainly increased their allocation to four types of financial assets: bank wealth management products, capital market products, offshore products, and private equity.
Among them, bank wealth management products are the financial product category that has seen the most significant increase in proportion within Chinese private asset allocation over the past decade, rising from 3% in 2007 to 10%. As the largest category of wealth management products in China, the outstanding balance of bank wealth management reached 28.45 trillion yuan by the end of the third quarter of 2017.
Capital market products currently rank third in Chinese private asset allocation, behind cash and deposits and investment real estate. Capital market products include stocks held by individuals, NEEQ (National Equities Exchange and Quotations), bonds, public mutual funds, and private securities funds.
As of the end of November 2017, public mutual fund assets had exceeded the 10 trillion yuan mark, totaling 11.41 trillion yuan, while the management scale of private securities funds reached 3 trillion yuan.
Scale and number of global/Chinese private securities industries over the decade
Over the past decade, offshore investment and private equity have achieved breakthroughs from nothing to something and have secured a place in Chinese private asset allocation. Data shows that since 2006, the annual growth rate of overseas asset allocation by domestic high-net-worth clients has been 38%, far exceeding the 20% growth rate of total investable assets.
The "White Paper" points out that high-net-worth clients prefer alternative assets for their overseas expansion, mainly including three major categories: hedge funds, private equity funds, and real estate funds.
Highlight 3: Preference for professional institutional wealth management
In terms of wealth management methods, an increasing number of high-net-worth individuals are managing their wealth through professional institutions.
From 2009 to 2017, the proportion of investable assets managed by professional institutions for high-net-worth individuals in China increased from less than 40% to over 60%, with an average of more than two institutions used.
The "White Paper" points out that with the continuous development of the financial product market and the increasing complexity of financial investment, managing wealth through professional institutions in the future will not only be the choice of high-net-worth individuals but also an ideal wealth management method for mass investors.
The proportion of high-net-worth individuals using professional institutions for wealth management continues to rise
Highlight 4: Comparison of financial product returns
To date, China has formed a product spectrum covering six asset categories, including bank wealth management, trust products, public mutual funds, private securities funds, private equity, offshore products, and structured products.
The "White Paper" summarizes the performance of various financial products from 2007 to 2017. From the perspective of returns, the risk and return of various products are positively correlated. Equity products lead investors to share the fruits of economic growth, while fixed-income products provide investors with steady returns.
Historical performance from 2007 to 2017 shows that high-risk equity products exhibit high-return characteristics. Public stock funds, private funds, and hedge funds all brought investors annualized returns of over 10%, far higher than the 2.1% annualized return level of the Shanghai Composite Index during the same period. Among them, private stock funds had the highest annualized return, reaching 12.8%.
In terms of volatility, in the three worst-performing years of the market—2008, 2011, and 2016—the declines in public and private stock products were far smaller than those of the index.
On the other hand, relatively low-risk products also provided investors with returns exceeding inflation and deposit rates. From 2007 to 2017, the annualized returns of bank wealth management, collective trusts, and bond products were between 5% and 7%, all outperforming the ChinaBond Total Wealth Index during the same period. Money market funds outperformed inflation of 2.8% with an annualized return of 3.3%.
Performance of various financial products from 2007-2017
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