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Against the backdrop of asset shortage, publicly offered funds have become the first choice for outsourced financial management funds.

According to Kaiyuan Securities data, as of the end of the second quarter of this year, public funds accounted for 33% of the incremental wealth management assets in the first half of the year, making them the largest increased asset.

Analysts said that liquidity, convenience compared to wealth management subsidiaries, the tax-saving effect of funds and the profitability brought by the prominent advantages of QDII quotas are all important reasons why public funds are popular among wealth management outsourced funds.

Financial management funds increased their holdings of public offerings by about 500 billion yuan this year

Data from Kaiyuan Securities shows that as of the end of the second quarter of 2024, wealth management held total assets of public funds of approximately 1.1 trillion yuan, an increase of approximately 500 billion yuan from the beginning of the year, and the proportion increased from 2.1% at the beginning of the year to 3.6% (all based on the post-penetration caliber).

According to data from the Asset Management Association of China, the net asset value of public funds totaled 31.08 trillion yuan by the end of June, and 27.6 trillion yuan by the end of December last year. The net asset size increased by 3.48 trillion yuan in the first half of the year.

That is to say, the 14.37% increase in the size of public offering assets this year was contributed by wealth management funds. In other words, with the "asset shortage" and the growth of wealth management scale, public offering funds have become an important investment direction for wealth management.

Specifically, the leading wealth management subsidiaries are the main force of outsourced public funds. Kaiyuan Securities counted the top ten wealth management holdings and found that the scale of outsourced public funds of wealth management subsidiaries of state-owned banks and joint-stock banks is relatively large, including China Merchants Bank Wealth Management, Industrial Bank Wealth Management, Bank of Communications Wealth Management, and Industrial Bank Wealth Management. Most of the wealth management institutions with large outsourced fund scales in the past years increased the scale of outsourced funds in the second quarter of this year. The current situation of "plenty of money" in wealth management has driven the growth of the scale of public funds to a certain extent.

From the perspective of investment targets, financial management funds are more inclined towards money funds and bond funds.

According to statistics from Kaiyuan Securities, as of the end of the second quarter of 2024, there were 1,292 public funds in the top ten wealth management holdings (not counted repeatedly, as of August 4 this year), of which money market funds and bond funds accounted for 10% and 50% respectively. If the funds with an increased scale and market share in the wealth management outsourcing market at the end of the second quarter of this year are defined as "funds that were increased in the second quarter of this year" (a total of 707 funds), and conversely, the funds with a decreased market share are defined as "funds that were reduced in the second quarter of this year" (a total of 943 funds), it is found that at the end of the second quarter, 101 money market funds and 127 short-term bond funds were increased by wealth management, accounting for 14% and 18% respectively, which is much higher than the proportion of existing funds in the same period. This means that the problem of under-allocation of short-term wealth management products (cash management and open-ended fixed income) is more prominent.

Four major preferences for financial management funds

When choosing investment targets, financial outsourcing funds have four major preferences.

First, they prefer large-scale funds that have been established for a long time and whose fund managers have been in the industry for a long time. The top 40 funds in terms of outsourcing of wealth management at the end of the second quarter (as of August 4 this year) had an average net asset of 1.6 billion yuan, and each of them ranked in the top 3.44% of similar funds on average. The average fund has been established for about 5 years, and the average fund manager has been in the industry for 6.6 years.

Kaiyuan Securities believes that the performance of this type of fund has a lot of historical evidence and can better cross market cycles.

Secondly, when choosing funds, financial management pays more attention to "absolute returns" rather than "relative returns". Since financial management itself is positioned as "absolute returns" rather than "relative returns", it does not pay too much attention to the ranking of fund returns. At the end of the second quarter of this year, among the funds held by financial management, the number of funds whose returns ranked in the 50%-100% of similar funds in the first half of the year was as high as 35.91%. There are also many funds in the top 10 of the scale of financial management outsourcing holdings that are not ranked high.

Third, outsourced wealth management funds prefer funds with a higher proportion of liquid assets. At the end of the second quarter of this year, outsourced wealth management funds increased their allocation of liquid assets.

Finally, wealth management prefers fund companies with a high ranking in terms of scale and bank-affiliated fund companies. Kaiyuan Securities ranked the funds outsourced by scale at the end of the first quarter and found that the top three were: Harvest Fund (12.3 billion yuan), E Fund (11.5 billion yuan) and China Merchants Fund (9.7 billion yuan).

Among the top 20 companies in terms of outsourced wealth management holdings, 14 are also among the top 20 companies in terms of total management scale. Wealth management prefers leading fund companies. In addition, among the 14 bank-affiliated fund companies in the market, 5 are among the top 20 in terms of outsourced wealth management holdings, and 9 are among the top 40. Bank-affiliated fund companies have a natural advantage in cooperating with wealth management companies.

Public offerings can bring more returns, liquidity and convenience

Why do outsourced wealth management funds prefer public offerings over other assets? Analysts believe that "tax saving" is a major advantage of public offerings. Specifically, there are two main categories: value-added tax and income tax.

Among them, value-added tax is mainly related regulations issued in 2016. Publicly offered funds are exempt from value-added tax on the purchase and sale of stocks and bonds, while other asset management products such as wealth management are required to pay 3% value-added tax.

Income tax is mainly stipulated in the 2008 notice on "certain preferential policies for corporate income tax", which clearly stipulates that the income obtained by securities investment funds from the securities market, including interest income and capital gains, is not subject to income tax. However, for capital gains realized by purchasing bank wealth management products, enterprises are required to pay 25% corporate income tax in principle.

Kaiyuan Securities analysis shows that as the yield of wealth management continues to decline, the tax saving advantage of funds has gradually become more prominent. Since public funds are exempt from value-added tax, the yield of cash management products has continued to decline after the "manual interest supplement" was stopped, and they are not exempt from value-added tax, which may prompt more wealth management to outsource to public funds, thereby achieving the purpose of tax saving.

Not only do wealth management funds benefit from the tax-saving advantages of public offerings, CITIC Securities Research Department estimates that the scale of commercial bank fund outsourcing may be close to 7 to 8 trillion yuan, and the annual tax cost savings may be in the tens of billions.

In addition to the "tax saving" advantage, public funds have more QDII quotas, which can help financial managers allocate global assets and achieve higher returns.

According to Kaiyuan Securities, at the end of May this year, various institutions added $2.27 billion in QDII quotas after a lapse of 10 months, among which fund companies added the largest amount of $1.23 billion. The issuance of QDII quotas is related to the use of quotas by each institution, and usually the quotas will be issued first to institutions with insufficient quotas. In recent years, some products have achieved higher returns through overseas asset allocation through QDII, and QDII products are also popular. Since the QDII quotas applied for by financial management companies themselves are relatively limited, public funds can also help financial management to make QDII investments.

In general, the fund's tax-saving effect and QDII quota advantage can bring more returns to outsourced financial management funds.

In addition to profitability, public funds can bring more liquidity to financial management funds.

Kaiyuan Securities believes that financial management faces great short-term under-allocation pressure and needs to rely on public funds to quickly build positions. Assets such as high-interest deposits and smoothing trusts are facing rectification, and financial management faces great short-term under-allocation pressure. Increasing bond assets is still the general trend. For credit bonds, it is difficult to find trading counterparties for some bonds with inactive transactions in the short term. If you invest in public funds, you can greatly improve the efficiency of asset allocation and achieve rapid subscription and rapid position building.

In addition, compared with wealth management subsidiaries, the fund investment and research system has a first-mover advantage.

Financial management companies have few investment and research personnel, and it is difficult for them to bear the workload of direct bond investment. Although financial management can directly invest in bonds, since each financial product must open a separate account, the workload of bond investment, finding trading counterparties, and account maintenance is complicated. In fact, with the establishment of a large number of financial management subsidiaries in the past few years, some people in the fund industry have worried that after financial management subsidiaries build their own investment and research systems, the willingness to outsource funds will decline.

However, due to the salary limit system of commercial banks and the traditional business model dominated by parent banks, investment research personnel in wealth management companies are relatively insufficient. As of August 4, Kaiyuan Securities found that the average investment personnel of established wealth management companies managed 14 products and 16.1 billion yuan in assets, which is much higher than the average of 3 products and 5.2 billion yuan in assets of public fund companies. By handing over part of the workload of bond investment to public funds with smaller per capita management scale, only a unified bond investment account needs to be opened to achieve refined management, which greatly reduces the workload.