Let me talk about the future opportunities and challenges of the special asset industry from a macro perspective.
First of all, one of the most striking features of the modern global financial environment is the low interest rate, which may last for a long time. If this judgment is established, it will have a great impact on the pricing and trading of special assets or non-performing assets.
We are observing a phenomenon now. From a global perspective, security assets, as one end of assets, are the so-called security assets just like national debt. If it is the other end of the asset, it is the special asset discussed today. On the demand side, the pricing or interest rate of safe assets is getting lower and lower. Affected by the COVID-19 epidemic this year, the yield of 10-year US Treasury bonds fell below 1%, and there are still many assets with negative interest rates. The pricing of safe assets is falling. On the one hand, this is related to monetary policy, on the other hand, it also reflects that the world is facing various uncertainties and risk challenges. We are in the midst of great changes that have never happened in a century. Objectively speaking, in the process of anti-globalization, or globalization is in the process of mode transformation, various risk events and black swan events emerge one after another, which will increase the demand for safe assets. At the same time, it will also bring another problem, the return on assets is getting lower and lower. In this context, the scale of special assets or non-performing assets brought about by various uncertainties and challenges will continue to grow. From the early 1990s to 1999~2000, when the NASDAQ technology stock bubble burst, to the subprime mortgage crisis in 2008, and then to the impact of the COVID-19 epidemic, if special assets represented by high-yield bonds are priced, we can see that the yield of high-yield bonds tends to decline as a whole, which is a feature. Judging from the credit spread, the spread between high-yield bonds and safe assets is also expanding.
In short, under the background of global low interest rate environment, great changes in external environment and obvious increase in various risk events, on the one hand, the scale of special-purpose assets industry is increasing day by day, and the market potential is very great; On the other hand, how to better reflect the return on investment in asset pricing also brings us some challenges, so opportunities and challenges coexist. For us, a very important aspect is how to better tap the value of special assets and really develop the market into an asset management market, which involves the second question I want to talk about.
Second, how to make the market truly become an asset management market. Judging from the situation of mature markets, special assets have been an important part of asset management market since 1980s.
Oak Capital is a good asset management institution in the global special asset industry. I spoke to them on the phone yesterday and told me a very important situation. Since the early 1990s, the global * * * has experienced four major financial crises, during which the countercyclical operation of Oak Capital has gained rich returns. In the past 40 years, about 10 years has been a cycle. Buy assets and issue closed-end funds at the beginning of the crisis, with a cycle of 10 year. At the end of the cycle, the average annualized rate of return of investors is as high as 23%.
From the investment strategy, it can be roughly divided into two stages. The first three years are the investment period. Looking for assets to invest in the early stage of the crisis, the income obtained during the period is also used for circular investment. For example, when the epidemic broke out in March this year, the United States released a large amount of dollar liquidity and sold assets in succession. The first thing to sell is high-risk assets such as leveraged loans, and their prices have fallen very low. They saw this opportunity and bought a lot of assets. In May, under the super-loose policy of the Federal Reserve, the prices of these assets rebounded rapidly and the assets were sold with a return. As a closed-end fund, the income will not be distributed to investors at this time, but will be used for circular reinvestment.
The next seven years will be used to manage these assets, gradually withdraw from the investment, and then distribute them to investors to get returns. The management of special assets is actually a cycle management and a typical value investment, and its value should be tapped. In a crisis, the value of special assets or non-performing assets will become very low. All high-risk assets have this feature, and there will be a value recovery period in the later period. Therefore, special asset management is more counter-cyclical management and a long-term management. It can be seen from this case that the market potential of the whole special asset industry is very great now.
From the establishment of four asset management companies in the late 1990s, the competition pattern of diversified market players has gradually formed. Especially under the impetus of digital technology, the retail end of the whole special asset industry chain has made great progress, providing conditions for marketization, transparency and standardized disposal. But generally speaking, China's special assets have not really realized the concept of asset management in the sense of residents' wealth management. From the perspective of product structure, among the bank wealth management products, the low-risk products with R 1 and R2 grades are money funds and high-grade bonds, accounting for a very high proportion, exceeding 80%.
Under the new asset management regulations, the requirements for net value conversion have been significantly improved. In this context, low-risk assets can be managed according to the fair value of the market, which is also a normal phenomenon at this stage. However, we should also see that the product structure of asset management reflects that we are still in the primary stage of development.
If we want to turn special assets into real important categories of residents' wealth management and value-added, we need to make a lot of efforts in marketization, specialization and training qualified investors. Among them, according to the introduction of Oak Capital, there are about six types of investors in funds with special assets: first, sovereign wealth funds, such as China Investment Corporation and other state-owned enterprises allocate some assets in Oak Fund as part of diversified investment and countercyclical investment; Second, long-term funds, including various insurance funds (such as enterprise annuities and pensions). ); Third, the family financial office, through which many huge private wealth is invested; Fourth, various university endowment funds; Fifth, customers of private banks, so-called high net worth people; Sixth, in addition to the above-mentioned institutional investors or high-net-worth people, ordinary individual investors account for nearly 30%. Therefore, from the perspective of investor structure, special asset funds are diversified and can actually become an important channel for residents' wealth management.
First, we should cultivate long-term investment in asset management industry, especially in special asset industry, and don't ignore the value of special assets conceptually. Qualified investors with long-term funds and high net worth should be encouraged to participate in special asset investment, and even individual investors should be encouraged to invest in some special assets in some way under the background of digitalization, standardized transformation and improved supply. According to domestic successful cases, this kind of high-risk assets can actually be accepted by ordinary investors under the background of digital transformation. 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 practice is actually to standardize some special assets of individuals under the impetus of digital technology, thus promoting the development of the trading market. On the one hand, it is necessary to cultivate qualified investors, on the other hand, it is necessary to gradually abolish the restrictions on some special asset management products and their investment at the institutional level.
Secondly, the current tax support policy is mainly aimed at Public Offering of Fund. Can we combine the tax support policy with the structural optimization of the future asset management industry, encourage more equity investment and special asset investment, and give more tax policy support to such investors and managers? Including the possibility of setting up some parent funds at the national level to attract more social funds for special asset industries, is also worth exploring. If the special asset management industry is more market-oriented, it will attract more social funds to participate, such as some private equity funds. If they can better connect with the new asset management regulations, they will be more motivated to raise funds to invest in the special asset management industry, which will also promote the improvement of the new asset management regulations and optimize the asset management structure.
Third, the special asset management industry can also help the economic transformation and upgrading.
In recent years, we are in the process of transforming old and new kinetic energy or upgrading the economic structure, especially the 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 large number of debt-to-equity swaps, debt restructuring and asset restructuring. In the next step, how to deepen the level of financial restructuring and financial asset management to the level of factor restructuring, and realize deep integration with state-owned enterprises and capital market mergers and acquisitions is also a direction worthy of discussion and an important way to realize value appreciation.
(Author: China Wealth Management 50 Forum (CWM50))