Exclusive interview with Jessica Xu, Senior Investment Strategist, Hywin International: Chinese high net worth clients are increasingly seeing the benefits of diversifying into global assets rather than being very China centric

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TDB: How have the needs of Chinese high-net-worth clients evolved over the past few years? Why has this happened – and what has surprised you about this development?

Jessica Xu, Senior Investment Strategist, Hywin International: The macro landscape has seen some changes in the past few years, and so have the needs of Chinese high-net-worth clients. In the past, Chinese assets offered a high return potential, be it equity and bonds or the renminbi which had appreciated for quite some time. But the investment landscape gradually changed due to geopolitical tensions, the pandemic and the intensified growth challenges in China and abroad. So Chinese high-net-worth clients are increasingly seeing the benefits of diversifying into global assets rather than being very China centric. We are seeing clients becoming more open to asset classes that they were not familiar with before and being more conservative with their overall asset allocation or investment approach. They have become more humble to the market, having earlier got used to high growth expectations.

In the past, their portfolios were heavily skewed to two ends of the spectrum – on one hand, into fixed income because yields in China were higher than in US dollars or other currencies, and on the other hand, into the private equity space where they can ride on the trend of the Chinese economy booming. They were also strong on real estate investment. But they have since turned more conservative because yields onshore are lower than offshore, and the private equity space hasn’t performed well in the past one to two years. They are now choosier in terms of picking their private equity manager and are more open to offshore assets. The shorter end of the US curve has now become much more attractive, while with private equity investments, they are becoming more opportunistic.

TDB: How has the role of a portfolio manager focused on China’s HNW group changed in the past year amid the headwinds facing China and global markets?

Jessica Xu: As a portfolio manager, before we always emphasised diversification and a prudent approach, but clients were taking more risk than we thought necessary or what we suggested. But now, they are pulling back, and we are drawing them back to what we think is a realistic growth prospect. We are seeing demand shifting from high returns to more stable and consistent returns, so we are helping them to form that opinion and securing their portfolio.

TBD: In what ways are the investment needs and appetites of the Chinese HNW group different from that of the wealthy in the rest of Asia and globally?  

Jessica Xu: The Chinese high-net-worth group combines a big group of so-called new rich, or entrepreneurs from the technology, biotechnology, new energy or other innovative sectors. The main composition of their wealth is quite often stocks of listed companies or equities of unlisted companies. This group of new rich needs help in managing their financial assets generated by shareholding or equity stakes, which are their main sources of wealth. These clients tend to pay more attention to diversification of their asset allocation to withstand potential shocks that a high growth or high-risk single industry could be subjected to.

This kind of phenomenon is much more obvious in China because most of the high-net-worth population in the developed markets is quite mature, so their assets are much more diversified and well established. The new rich phenomenon in China is a situation where the wealth of the entrepreneurs is quite tied to their businesses. They need to diversify and liquidate some of their wealth.

TDB: What are some of the biggest challenges facing China’s wealthy – and where are the opportunities for external asset managers?

Jessica Xu: As a lot of the entrepreneurs accumulate wealth from their business, lack of sufficient diversification and lack of liquidity are the biggest challenges. So, asset managers that can offer an innovative solution for these pain points will be in demand and that is where lies the biggest opportunity.

TDB: How much of a role do digital tools play in the China wealth space?

Jessica Xu: E-commerce, e-payments and similar digital tools have become popular in China so digital tools are certainly playing an increasingly important role in Chinese wealth management activities. It’s something wealth managers in China can’t afford to miss. So how do we embrace this burgeoning trend? [In early December], Hywin announced that we have formed a strategic partnership with Tencent Cloud for digital transformation. The aim is to fully leverage Tencent Cloud’s cutting-edge technology and innovative digital solutions in various fields, for example, cloud computing, AI, big data analytics, and to support Hywin’s digital transformation and facilitate our roadmap of wealth and health management. This is particularly helpful for the mass market wealthy. But if we’re talking about high-net-worth or ultra-high net worth and serving their wealth management needs, it certainly requires more human interaction. The high-net-worth quite often demand tailor-made solutions to suit their unique circumstances so effective communication and building trust between clients and wealth advisors is much more critical than when it comes to serving the mass market.

Key numbers for Nasdaq-listed Hywin Holdings for the fiscal year ending June 30, 2023

  • Revenues rose 7.7% year-on-year to RMB2.1 billion (USD301.3 million), including a 2.6% jump in net revenues from wealth management services.
  • Number of active clients increased 6.5% to 46,627, while number of clients rose 8.2% to 152,607.
  • Hywin has nearly 1,750 relationship managers and 185 wealth planning centres in China.
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Edmund Shing, PhD

Global Chief Investment Officer
BNP Paribas Wealth Management

Edmund has over 29 years of experience in financial markets in a wide variety of positions, ranging from proprietary trading to portfolio manager in a number of financial institutions in London and Paris.  He previously held the role of Global Head of Equity and Derivative Strategy at BNP Paribas in London from 2015 to 2020, and has been Chief Investment Officer at BNP Paribas Wealth Management since November 2020.

Edmund is responsible for piloting our investment strategy and will continues to rollout out recommendations and themes with actionable advice that brings our expertise to our clients and support to our client-facing teams.  In this time of change, his expertise in following and anticipating markets is a true value added for both our customers and those at Wealth Management who serve them.

Edmund has a PhD in Cognitive and Computing Science from the University of Birmingham in the United Kingdom, and has done advanced studies in Knowledge-Based Systems and in Experimental Psychology.  He is an EFFAS-certified financial analyst. He has also authored the book “The Idle Investor” published by Harriman House in 2015, proposing 3 simple investment strategies that take only a few minutes to execute per month.

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