China’s biggest fund house is readying an equity fund for launch on its Taobao online store this year, but it has no current plans to bring Yu’ebao, its hugely successful money-market (MM) product to Hong Kong, despite media reports saying it has.
Zhou Xiaoming, vice general president at Tianhong Asset Management, outlined the firm’s plans this week at the annual conference of the Hong Kong Investment Funds Association. He flagged challenges related to Yu’ebao, MM products and internet platforms in general during a discussion about how to expand via online business.
“We keep thinking how to enrich our product line after launching Yu’ebao last year,” said Zhou, noting that the equity fund is next on the agenda but without giving more detail.
He pointed to mainland investors’ rising interest in equities recently, following a decline in Chinese government bond yields, from 4.55% to 3.74% this year, according to data provider ChinaBond.
Meanwhile, some media have reported that the firm plans to introduce Yu’ebao (‘leftover treasure’) to Hong Kong, but that is not the case at present. Hong Kong’s low interest rate (three-month Hibor was 0.37% at the time of writing) would reduce the product’s yield. Another factor is finding a suitable e-commerce platform in the city.
Yu’ebao has helped make Tianhong the biggest mainland fund house with AUM of Rmb587 billion ($96 billion) as of the end of June – it overtook China Asset Management in April this year.
And others have seen success with similar strategies. China had 141 MM funds with total AUM of Rmb1.76 trillion as of the end of August – the number of funds has doubled and the AUM has increased nearly sixfold since June last year, according to the Asset Management Association of China.
But it may make sense to diversify beyond MM funds. Yu’ebao's average seven-day annualised yield have fallen from above 6% last year to 4% today. Then in the third quarter Yu’ebao’s AUM fell 6.8% to Rmb535 billion, the first decline since its launch, although the number of users rose 20% to 149 million over the same period.
Yu’ebao’s initial 6-7% yield was mainly due to a money shortage in China’s banking system last year, said Zhou, but the 4% average yield today is still higher than the domestic 3% deposit saving rate.
And he remains optimistic about the room of expansion for China’s MM funds. He cited total assets of MM funds at Rmb1.7 trillion, while current-account deposits amount to over Rmb10 trillion. This is still a low proportion in comparison to the US, where total assets of MM funds amount to double the figure for current-account deposits.
Tianhong may have attracted a lot of demand, but Zhou acknowledged that it has learned lessons about product management and client servicing since launching Yu’ebao.
For one thing, clients like simple products, as complicated products require a learning process and are associated with greater uncertainty, he said. Most Chinese mutual fund buyers have little knowledge and experience of investing, he added, noting that Tianhong is relatively conservative in terms of the new products it develops.
The success of Yu’ebao is down to innovation in the distribution model rather than product innovation, stressed Zhou at the HKIFA event. The challenge in selling MM funds lies in how to use internet finance to connect with users while complying with the regulations.
“The internet is an open platform and client needs are simple, but [fund managers] cannot avoid legal compliance,” said Zhou.
This led to a lot of challenges during the design process of Yu’ebao. One difficulty revolved around the need to allow Alipay users to invest a minimum of Rmb1 and allowing investments 24 hours a day, seven days a week.
The China Securities Regulatory Commission is supportive of the development of third-party distribution platforms in the mainland, Zhou added, but the key driver for innovation is client behaviour and demand.