China’s reforms to hit investment trust industry hard: study

China’s reforms to hit investment trust industry hard: study

1:17am EST

BEIJING (Reuters) – The breakneck pace of growth in China’s 10 trillion yuan ($1.64 trillion) investment trust industry is unsustainable and earnings risk drying up as the government steps up financial reforms that will change sources of revenue, research shows. Close to 90 percent of revenues in the industry are at risk in the long run with about 40 percent of earnings forecast to disappear completely in five years, according to a study by consultant McKinsey & Company and Ping An Trust.The sector, the second-biggest financial industry in China after banks, earns most of its present income from financing riskier borrowers and helping banks and other institutions buy assets that they cannot invest in due to regulations.

But these revenue sources will vanish as China liberalizes its financial industry to let investors buy into a range of assets, and give riskier borrowers more access to credit, the research said.

“Just how big a role will be left for trust companies and at what margins is unclear,” the report said.

To survive, China’s trust firms will have to remake themselves into companies similar to Goldman Sachs, specializing in investment banking, private wealth management and alternative asset management, said Stephan Binder, a director at McKinsey.

A part of China’s ballooning shadow banks, investment trusts have exploded on the back of a class of borrowers who cannot borrow from banks due to regulations or their risk profiles.

Trusts have stepped in to fill the void by linking borrowers to investors and savers seeking higher returns for their excess cash.

Ping An Trust is a unit of the world’s No. 2 insurer by market value, Ping An Insurance Group Co (601318.SS:QuoteProfileResearchStock Buzz) (2318.HK: QuoteProfileResearchStock Buzz).

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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