The way out for the asset management market

New Challenges Facing the Global Asset Management Market

First, let's review the two major issues faced in the development of asset management in China.

Firstly, asset management is neither direct financing nor indirect financing. However, it possesses functions of both direct and indirect financing, making the development of asset management potentially an effective way to break through the rigid financial structure in China. "The idea of increasing the proportion of direct financing has been mentioned since last century, and it remains the same today, so we must discuss whether this issue is raised correctly? We mainly explore whether the approach is correct."

Secondly, the development of asset management in China needs to overcome some institutional barriers. The definition and legal implementation of asset management are based on trusts, which are difficult to develop effectively in China. This is because China follows a civil law system, which has many restrictions on the development of trusts. As a result, we observe the trust industry experiencing ups and downs, and it is always declining, indicating a problem. The fact that it rises again after encountering problems shows a need. How to develop trusts under China's legal system is actually a significant issue. Under the current regulatory framework, how to revitalize the trust industry is the next reform task and a long-term one.

When discussing "new challenges facing the global asset management market," Li Yang said that the global asset management market experienced a significant decline in 2022, while prior to that, the growth was very stable. The situation in 2024 was better, with faster development, indicating that the entire financial market and economic system are indeed recovering.

Li Yang introduced that the scale of China's asset management market is expanding in line with the global pace. "The financial situation is not very good, essentially, the global finance must be reformed. In the past few decades, to a considerable extent, it has gone astray and needs reform. However, the development of our asset management industry can be said to be unique," he said, looking at the past development, the development of trust-based asset management has been quite fast. "Everyone knows that trust companies have had a tough time in recent years, with constant news of defaults, but asset management has still developed rapidly, which exactly confirms that the essence of asset management is trust. The new asset management regulations have made this point very clear."

Li Yang emphasized that for the asset management market to develop further, it must be based on what. "If the economy is good, the financial situation will be good, and our asset management will have fertile soil, and we may have significant development."

However, Li Yang warned that the global growth in the coming years is not optimistic, and the global financial industry is also undergoing adjustments, which is undoubtedly the case. The speed of asset appreciation is expected to slow down, so the asset management industry may face more challenges.

The International Monetary Fund's forecast released in April shows that the global economic growth forecast for five years later is 3.1%, the lowest in decades. "We must face this harsh fact, and asset management must also face such a fact."When discussing current trends in asset management, Li Yang introduced five aspects:

Firstly, there is a global issue of rising costs, stagnant revenues, and declining profits in asset management. "The rise in costs indeed has many reasons. I have seen more detailed analyses, such as employee salaries. Salaries for employees in asset management and finance are high across various industries and countries, and they are now starting to decline. Employee salaries and transaction costs are two of the higher expenses, so the rise in costs leads to stagnant revenues and declining profits."

Secondly, investors are turning to low-fee products. Li Yang explained that financing is divided into three categories: money markets, bond markets, and equity markets. "Originally, high returns would definitely be invested in stocks, but now the whole world is turning to money markets. After everyone has recovered the previously scattered investments and various funds outside of banks, the first thought is to deposit them in state-owned banks, to the extent that banks are now using various methods to be unwilling to provide many services. Now, fixed deposits for two or three years require planning and quotas, which shows that the world is paying extraordinary attention to safety." Li Yang believes this is closely related to the general rise in economic and financial risks.

He also mentioned the securities market, "Looking at the trend of individual stocks, those that can provide returns similar to bank deposits are still acceptable," Li Yang said. During a discussion chaired by the chairman of the Securities Regulatory Commission, Wu Qing, he suggested, "The market should also provide some places where the money for the elderly's retirement can be placed. (Listed companies) must insist on dividends, cash dividends, and it's okay to distribute them twice or three times a year."

Li Yang said, "(The financial industry) all growth, all profits, are based on the creation of the real economy. On the basis of the real economy's creation, the bank takes a share, first using interest to distribute, and then other benefits."

Thirdly, passive funds are favored by investors. Li Yang analyzed that passive investment is relatively easy to guard against risks and avoid losses, especially not losing all one's capital. "If the financial environment does not improve significantly, this situation seems likely to continue."

Fourthly, management fees are declining. Li Yang believes that this is a global trend, which is to significantly reduce the service costs of the financial industry. "The function of the financial industry is the top priority, and it is necessary to balance functionality and profitability well. Functionality is the top priority, it is a medium, it is asset trading, it is resource allocation, and the lower the cost of the medium, the better. If reversed, from the perspective of the financial industry, it is a general issue of declining management fees, which is related to the overdevelopment of the financial industry in the past two to three decades, and it should be considered as a correction."

Fifthly, through surveys, investors believe there are no reliable products. "In recent years, the number of products created has been increasing, especially financial derivatives in 07 and 08 that made investors highly alert. It's hard to understand a product, how many levels it penetrates. Since then, investors have gradually become more cautious, and with the overall poor economic and financial situation, the financial institutions can put into the market, and the products that are accepted by investors and continue to be similar are becoming fewer and fewer. In 2010, 60% were still in existence, in 2015 it was 42%, and in 2023 it was 37%. Many products were launched and then disappeared, which is of course closely related to the uncertainty of the economy and finance," Li Yang said.

So, where is the way out for the asset management market? Li Yang said that it is necessary to use new quality productive forces.

Firstly, improve the production efficiency of asset management. The fundamental way to improve the efficiency of asset management is to keep up with the pace of technological development, and to use AI quickly, comprehensively, thoroughly, and unambiguously.Second, strive to develop personalized products. The asset management industry needs to develop personalized products, to customize, to interact with customers, and to improve sales methods.

Third, the private equity market needs to be developed.

Li Yang stated that "new quality productive forces" is an innovation of Chinese-style political economy, "this concept revolves around technology, intelligence, artificial intelligence."

He cited a foreign survey on "using AI to empower asset management business" as an example, saying that 54% chose to have a significant impact, 27% chose to have a general impact, 2% chose to have a minimal impact, and 0% chose no impact, "obviously everyone believes it has an impact."

"I recently looked at an internal speech by Google's former CEO at Stanford University, and some meddlers said his face turned green because he said a lot of things that people didn't want to hear, very shocking things," Li Yang said, "I think he made a very pertinent point - a big change, you can't expect it to have a big impact quickly, but given time, everything has changed."

"His point is to tell you that you should invest now. For example, it took 30 years for electricity to replace steam engines. Those who were willing to replace them all survived successfully, and those who were unwilling were eliminated. Moreover, the replacement process is very interesting. At first, it was all large motors, and then it gradually became small motors, with every activity driven by small motors. His experience should be highly valued by us. He has felt the importance of AI, and he can grasp the pulse of the times," said Li Yang.