China Merchants Bank (CMB) has grand plans for wealth management. The Chinese lender only started a private bank division in Shenzhen in 2007; by the end of June 2017 it had $265 billion in assets under management, making it the world’s 15th largest, according to consultancy Scorpio Partnership. 

And it’s still growing fast. CMB Private Bank’s assets under management (AUM) jumped 11% in the first half of this year alone. To continue this growth, the bank wants to build out its international operations. These consist of its Hong Kong platform (which started with its acquisition of Wing Lung Bank in 2014) and offices in New York and Singapore (established in April 2016 and April this year, respectively). It plans similar operations in Luxembourg, Sydney, London and Los Angeles within three years.

In particular, the bank is keen to expand its Hong Kong business by doubling the number of relationship managers that it employs in the territory, Wang Jing, general manager of CMB Private Bank, has told AsianInvestor.

During her interview, Wang also discussed how the bank gets into the minds of Chinese clients.

Q What are the characteristics of Chinese high-net-worth individuals?

Most are still first-generation entrepreneurs. They have some knowledge on investments, but are not very familiar with different types of financial instruments.

Meanwhile, China’s economy is undergoing an industry upgrade, while many of the entrepreneurs started their businesses in traditional industries such as energy sectors, so they are [seeking] to transform their businesses. 

Thirdly, many of the high net worth (HNW) clients are … transferring their wealth to their next generation, or nurturing successors of their businesses.  Their wealth has accumulated to a certain level, so their investment focus is no longer on wealth appreciation but more on risk management, reasonable returns and wealth inheritance.

Q What products are particularly popular with your clients?

Because monetary policy is getting tighter in China, some large-and-medium-sized property developers need to raise capital through private funds. So we’ve seen increasing deals on this front recently. 

This type of investment is high risk, so is only available for private bank clients. Such investments normally last for at least three years and offer returns of about 6%.

Q How big is your research and investment team?

We have about 120 staff. The team covers markets both onshore and offshore, so we recruit staff from Hong Kong and Taiwan as well. Many also have non-banking experience such as in the fund or brokerage sectors. Most are based in Shenzhen; some are in Beijing, Shanghai and other provincial capitals.

Q What is the process for deciding on asset allocation?

We have three investment analysis teams covering macro research, investment strategy research, and financial instruments research, including mutual funds, private equity funds and hedge funds.

We have an investment committee that generates house views for asset allocations every quarter, based on our research teams’ findings. The committee comprises investment research staff, investment consultants directly serving clients, investment managers from the discretionary investment team, and product specialists. 

Apart from the house view on general asset allocation, we have recommendations for financial instruments under each asset class, which together feed into our self-developed global asset allocation system (GAAS). We use the GAAS system to provide tailor-made investment proposals to each client. 

Q How many products do you offer? 

We have over 1,000 onshore investment products, totaling Rmb300 billion ($45.97 billion). We adjust the product offering every quarter, and review new products every week. Usually, we add and reduce dozens of new fund products every year.

Q How do you select managers and products?

We look at the track record and the team of a fund manager—they need to be influential in the industry and have focused on their investment area for quite a long time. We’ll also look at their investment decision-making process, risk management and the mid-and-back office support for their products. 

For specific products, we’ll check the background of the fund managers, the track record, historical performances and management size of the all the products the manager oversees, as well as the investment strategy of the product.

Q How much do QDII (qualified domestic institutional investor) products account for in your range? 

QDII products accounted for about 1% of our overall products offering, mostly in funds of funds. Apart from traditional mutual funds, clients are now interested in overseas alternatives, such as Reits, as well as Asia high-yield bonds, and “new economy” stocks.   

Q How do you secure the best product providers in offshore markets?

When we first started in Hong Kong, it was difficult to partner with good product providers because we lacked track record. It’s now easier because [we have that and they know] we share the same client serving philosophy and process. 

Wealth management is in early stages of development in China. There are some irregular onshore sales practices by some financial institutions from time to time. Whether a private bank can serve its clients in a professional way is what good product providers pay attention to. 

Q What are your competitive advantages versus global private banks?

Our biggest advantage is that we know our clients better. Under a strict regulatory environment, many foreign private banks are cautious about certain Chinese clients and they have questions about how they built up their wealth. Second, many Chinese clients are not familiar with the risk and expected returns of overseas investment, so it’s important that we know how to communicate with them in a way they can understand.

Q How important is your discretionary business? 

We now manage Rmb23 billion assets under the discretionary accounts. The threshold for clients eligible for the service is Rmb300 million in investable assets with us. Clients who are willing to give us discretionary mandates are typically those who have banked with us for long, understood our investment philosophy and have built up trusts with us. We expect the discretionary account area will grow. 

This Q&A interview originally featured in AsianInvestor's October/November edition.