Against the background of low global interest rates and a significant increase in various risk events resulting from major changes in the external environment, the scale of the special asset industry is constantly increasing and the market potential is very large. Ji Min, an academic member of the China Wealth Management 50 Forum (CWM50) and director of the People's Bank of China's Counselor Office, recently attended the second China Special Assets 50 Forum and pointed out that the management of special assets is actually a cycle management and a typical value investment. , to explore its value. The value of special assets or distressed assets will become very low in a crisis state. High-risk assets have this characteristic, and there will be a period of value recovery later. Therefore, special asset management is more of a counter-cyclical management, and at the same time it is A management with a relatively long term. The following is a transcript of the speech.

Let me talk about the opportunities and challenges of the special asset industry in the future from a macro perspective.

First of all, one of the most significant features of the global modern financial environment is low interest rates, and this feature may last for a relatively long time. If this judgment is true, it will have a relatively significant impact on the pricing and trading of special assets or distressed assets.

We are now observing a phenomenon. From a global perspective, safe assets are so-called safe assets like national debt as one end of the asset. If they are the other end of the asset, they are the special assets discussed today. On the demand side, safe assets are priced or interest rates are getting lower and lower. Affected by the COVID-19 epidemic this year, the yield on the 10-year U.S. Treasury bond fell below 1, and there are still many assets with negative interest rates. Safe assets continue to be priced lower. On the one hand, this is related to monetary policy, and on the other hand, it also reflects the various uncertainties and risk challenges the world is facing. We are in the midst of major changes unseen in a century. Objectively speaking, in the process of de-globalization, or globalization is in the process of model transformation, various risk events and black swan events are emerging one after another, which will increase the demand for safe assets. needs. At the same time, it will also bring about another problem, the return on assets is getting lower and lower. In this context, the scale of special assets or distressed assets brought about by various uncertainties and challenges will continue to grow. From the early 1990s, to the bursting of the Nasdaq technology stock bubble in 1999-2000, to the subprime mortgage crisis in 2008, and then to the impact of the new coronavirus epidemic, if high-yield bonds are used as a representative of special asset pricing , we see that the yields of high-yield bonds are generally declining, which is a characteristic. From the perspective of credit spreads, the price difference between high-yield bonds and safe assets is also expanding.

In short, in the context of the global low interest rate environment, major changes in the external environment, and a significant increase in various risk events, on the one hand, the scale of the special asset industry is constantly increasing, and the market potential is very large; on the other hand, On the other hand, how asset pricing can better reflect investment returns also brings us certain challenges, so opportunities and challenges coexist. For us, a very important aspect is how to better tap the value of special assets and truly develop the market into an asset management market. This involves the second issue I want to talk about.

Second, how to make the market truly become an asset management market. Judging from the situation in mature markets, special assets themselves have been an important part of the asset management market since the 1980s.

Oaktree Capital is the best institution in the world in asset management in the special asset industry. Yesterday I had a phone conversation with them and they told me a very important situation. From the early 1990s to the present, the world's financial markets have experienced four major financial crises, during which Oaktree Capital's countercyclical operations have received generous returns. In the past 40 years, there has been a cycle of about 10 years. At the beginning of the crisis, assets were bought and a closed fund was issued. The cycle lasted for 10 years. At the end of the cycle, the average annualized return received by investors was as high as 23.

In terms of investment strategy, it can be roughly divided into two stages.

The first three years are the investment period. Find assets for investment at the beginning of the crisis, and the profits earned during the period are also used for cyclical investments. For example, when the epidemic broke out in March this year, the United States released a large amount of US dollar liquidity and sold assets one after another. The first to be sold were high-risk assets such as leveraged loans, and their prices fell very low. They saw this opportunity and bought assets in large quantities. By May, under the ultra-loose policies of the Federal Reserve, the prices of these assets rebounded rapidly, and the returns were obtained from selling the assets. As a closed-end fund, the returns will not be distributed to investors at this time, but will be used for recycling reinvestment. .

The next seven years are used to manage these assets, gradually exit the investment, and then distribute returns to investors. The management of special assets is actually a cycle management and a typical value investment, and its value must be explored. The value of special assets or distressed assets will become very low in a crisis state. High-risk assets have this characteristic, and there will be a period of value recovery later. Therefore, special asset management is more of a counter-cyclical management, and at the same time it is A management with a relatively long term. It can be seen from this case that the market potential of the entire special asset industry is very large.

Since we established four asset management companies in the late 1990s, we have gradually formed a competitive landscape of diversified market entities. Especially driven by digital technology, the entire special asset industry chain has evolved. The retail side has made great progress, providing conditions for marketization, transparency, and standardized disposal. But generally speaking, my country's special assets have not yet truly realized the concept of asset management in the sense of residents' wealth management. From the perspective of product structure, among bank financial products, R1 and R2-level low-risk products based on monetary funds and high-grade bonds account for a very high proportion, exceeding 80%.

Under the new regulations on asset management, the requirements for net worth transformation have increased significantly. In this context, low-risk assets can be managed according to the fair value of the market, which is also a step at the current stage. normal phenomenon. However, it should also be noted that the product structure of asset management reflects that we are still in the early stage of development.

If we want to turn special assets into a truly important category for residents’ wealth management and value-added, we still need to put a lot of effort into marketization, specialization, and cultivating qualified investors. Among them, according to Oaktree Capital, there are roughly six types of investors in special asset funds: First, sovereign wealth funds. For example, state-owned enterprises such as China Investment Corporation allocate part of their assets in Oaktree funds as part of diversified investments and countercyclical investments. ; The second is long-term funds, including various types of insurance funds (such as corporate annuities, pensions, etc.); the third is family offices, through which many large amounts of private wealth are invested; the fourth is various university endowment funds; the fifth is private banks Customers are the so-called high-net-worth individuals; Sixth, in addition to the above-mentioned institutional investors or high-net-worth individuals, ordinary individual investors account for nearly 30%. Therefore, in terms of investor structure, special asset funds are relatively diversified and can actually become an important channel for residents’ wealth preservation and value-added management.

First, we must cultivate long-term investment in the asset management industry, especially long-term investment and value investment in the special asset industry, and do not ignore the value of special assets conceptually. We must encourage long-term funds and high-net-worth qualified investors to participate in special asset investments, and even encourage individual investors to invest in some special assets through some methods in the context of improved supply due to digitalization and standardized transformation. According to domestic successful cases, in the context of digital transformation, this type of high-risk assets can actually be accepted by ordinary investors. For example, in the past, Alibaba Group's asset securitization for loans to low-income people and small and micro enterprises was very large. This approach was actually driven by digital technology to standardize some special assets for individuals, which can promote the development of the trading market. . In terms of cultivating investors, on the one hand, we must cultivate qualified investors, and on the other hand, we must gradually eliminate some restrictions on special asset management products and their investments at the institutional level.

Secondly, the current tax support policies are mainly for public funds. In the future, can we combine tax support policies with the structural optimization of the asset management industry to encourage more equity investment and special asset investment, and to This type of investors and managers provide more tax policy support. It is also worth exploring whether some fund of funds can be established at the national level to attract more social funds for the special asset industry. If the special asset management industry becomes more market-oriented, it will attract more social capital to participate. For example, if some private equity funds can better connect with the new asset management regulations, they will have more incentive to raise funds to invest in special assets. The management industry can also promote the improvement of new asset management regulations and optimize the asset management structure.

Third, the special asset management industry can also help transform and upgrade the economic structure.

In recent years, we are in the process of transformation of old and new driving forces or transformation and upgrading of economic structure. In particular, digital development has accelerated this trend, and the epidemic will also accelerate this change. We have also promoted the mixed reform of state-owned enterprises and completed a lot of debt-for-equity swaps, debt restructuring and asset restructuring. The next step is how to deepen from the level of financial restructuring, from the level of financial asset management to the level of factor restructuring, with The in-depth integration of mixed-ownership reform of state-owned enterprises and capital market mergers and acquisitions is also a direction worth exploring and an important way to achieve value appreciation.

(Author of this article: China Wealth Management 50 Forum (CWM50))