Noah Holdings Private Wealth Asset Management Co., Ltd. (hereinafter referred to as 'Noah Holdings') successfully listed on July 13, 2022, issuing a total of 1,100,000 shares at a price of HK$292.0 per share.
During the Hong Kong listing process, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the issuer's competitive advantages, assisting the issuer, sponsor, and other professional intermediary institutions in completing the writing of relevant parts of the prospectus (such as the overview, competitive advantages and strategy, industry overview, business, and other important sections), facilitating communication between the issuer and the Stock Exchange and investors, helping investors quickly understand the market ecosystem and competitive landscape, and assisting the issuer in completing feedback on industry-related issues from the Stock Exchange.
The demand for wealth management services with high net value in China is growing
China's high-net-worth wealth management services refer to investment consulting services mainly provided to high-net-worth individuals, typically including financial planning, post-investment management, and other financial services. The market for China's high-net-worth wealth management services can be divided into two main categories: (1) Private banking departments of financial institutions, generally private banking departments of Chinese commercial banks targeting high-net-worth individuals and foreign financial service institutions; (2) Independent wealth management service providers, generally referring to providers that are not affiliated with any financial institution and offer and distribute various types of investment products and comprehensive financial planning services to clients.
According to the Frost & Sullivan report, China's individually disposable financial assets increased from RMB 13.18 trillion in 2016 to RMB 22.48 trillion in 2021, and are expected to reach about RMB 31.64 trillion by 2026. From 2016 to 2021, the investable financial assets of high-net-worth individuals in China increased from RMB 2.87 trillion to RMB 5.30 trillion, with a compound annual growth rate of 13.1% during this period. With the steady growth of China's overall economy, it is expected that the investable financial assets of high-net-worth individuals will reach about RMB 8.72 trillion by 2026, with a compound annual growth rate of 10.5% from 2021 to 2026.
The scale of financial assets that Chinese high-net-worth individuals can invest in
Forecast from 2016 to 2026
Source: Frost & Sullivan report
Although independent investment remains one of the main channels for Chinese high-net-worth individuals to allocate and manage financial assets, due to the emergence of a variety of rich investment products in the market in recent years and the heightened investment risk awareness of high-net-worth individuals, their asset allocation methods are becoming more diversified. The scale of financial assets allocated by independent high-net-worth wealth management service providers has experienced rapid growth and is expected to continue at a faster pace.
The scale of financial assets allocated to high-net-worth individuals through independent wealth management service providers has grown from RMB 2.4 trillion in 2016 to RMB 3.7 trillion in 2021, with a compound annual growth rate of 9.0% during this period. It is expected that by 2026, it will reach approximately RMB 6.9 trillion, with a compound annual growth rate of 13.3% from 2021 to 2026. The expected growth rate is faster than the expansion of financial institution channels and independent investment channels.
Market scale of China's high-net-worth wealth management service industry
With the increase in the number of high-net-worth individuals in China and their growing recognition, the high-net-worth wealth management service industry in China has also witnessed a period of strong growth. The industry's value increased from RMB 604 billion in 2016 to RMB 1177 billion in 2021, with a compound annual growth rate of 14.3%. It is expected that this will further increase to about RMB 1815 billion by 2026, with a compound annual growth rate of 9.0%.
Among them, especially independent high-net-worth wealth management service providers are expected to achieve significant growth in the future. The total revenue of independent high-net-worth wealth management service providers increased from RMB 128 billion in 2016 to RMB 200 billion in 2021, with a compound annual growth rate of 9.3%; and it is expected to grow at a compound annual growth rate of 10.8% to reach RMB 334 billion by 2026. In 2021, the revenue of independent high-net-worth wealth management service providers accounted for 17% of the total revenue of China's high-net-worth wealth management service market, and it is expected to increase to over 18% by 2026.
Total revenue of China's high-net-worth wealth management service providers
Forecast from 2016 to 2026
Source: Frost & Sullivan report
Driving factors of China's high-net-worth wealth management service industry
The rapid development of China's high-net-worth wealth management service industry is mainly due to the following factors:
(1) The population of high-net-worth individuals and their private wealth continue to increase:In the past few years, China's economic development has driven private wealth growth. The number of high-net-worth individuals (HNWI) in China has rapidly increased from 1.3 million in 2016 to 2.1 million in 2021, and is expected to reach about 3 million by 2026. The financial assets of HNWI have also experienced rapid growth. With the increasing need for intergenerational succession and the pursuit of asset preservation and appreciation, HNWI are increasingly inclined to seek more effective ways to manage their private wealth, driving the continuous growth of the HNWI wealth management service market.
2) Customer awareness and maturity continue to improve:The perception of wealth management services among high-net-worth individuals (HNWI) in China has always been low. Given the development of China's financial market and the increasing maturity of wealth management products, the demand for professional wealth management services that can effectively manage and allocate assets, balance investment risks and returns is growing among HNWI. In addition, as the investment strategies of HNWI become more sophisticated, they are demanding that wealth management service providers offer more value-added services such as customized financial planning and investor education.
In terms of supply, as the needs of high-net-worth individuals in China continue to evolve, more and more qualified and experienced professionals are dedicated to the development and innovation of financial management products. The abundant product supply is expected to attract more investable assets into the high-net-worth wealth management service market, further driving market development.
3) Business model transformation of wealth management services:As the financial knowledge and risk awareness of high-net-worth investors in China increase, their investment needs are gradually shifting from short-term guaranteed returns to long-term asset appreciation. In addition, the People's Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange jointly issued guiding opinions in April 2018 that prohibit the issuance of private placement debt products containing any explicit or implied guarantee of returns. The changing customer demand and regulatory environment have prompted high-net-worth wealth management service providers to upgrade their investment products and financial services to enhance competitiveness, which is expected to further promote market growth.
4) Continuous technological empowerment:The high-net-worth wealth management service industry has adapted to advanced technical solutions and developed accordingly. Leading providers of high-net-worth wealth management services use online platforms to enable clients to easily obtain information and conduct transactions digitally, provide advice and manage their investments using artificial intelligence, and determine investment goals through algorithm analysis. The adoption of new technologies has greatly improved the efficiency, customer experience, and reliability of high-net-worth wealth management services. Further implementation of advanced technical solutions is expected to drive rapid development in the high-net-worth wealth management service industry.
5) Development of China's Capital Market:The opening of China's capital market to overseas investors, coupled with the increasing number of listed companies in China and abroad, has provided more exit opportunities for private equity investments. This has further promoted the expansion of investment product supply, both of which have facilitated the further development of the high-net-worth wealth management service industry.
Competitive Advantages of China's Independent High-Net-Worth Wealth Management Service Providers
Although the private banking departments of mainstream financial institutions and independent high-net-worth wealth management service providers currently overlap in business model and customer distribution, there are differences in customer demographics, product supply, distribution models, operational models, and the application of technical capabilities. The following are the main competitive advantages of independent high-net-worth wealth management service providers over financial institutions:
-
The customer base is extensive, and the customer segmentation is more refined.
High-net-worth wealth management service providers typically serve a broader and more diverse client base (from entry-level clients with asset management scales exceeding RMB 3 million to ultra-high-net-worth clients with asset management scales exceeding RMB 50 million), while maintaining a more refined customer segmentation. Although private banking departments of financial institutions have the opportunity to cross-sell investment products to existing customer groups of affiliated financial institutions, their customer services are less differentiated, and the degree of customization of products and services provided is also lower.
-
Diversified investment product portfolios can meet the needs of high-net-worth investors
Financial institutions usually give priority to distributing wealth management products offered by banks and their affiliated financial institutions. Private banks provide more standardized products, mainly including cash management, public market investments, and a small number of alternative investment products, with limited PE/VC offerings. In contrast, wealth management service providers for high-net-worth individuals typically operate as independent open platforms, offering investment products from a wider range of external suppliers. Their products are diversified and customized to meet the specific needs of high-net-worth clients, providing a richer portfolio and a broader range of PE/VC and other alternative investments.
Leading independent wealth management service providers can use their licensed overseas entities or through overseas partners to meet the growing global asset allocation needs of high-net-worth clients. In contrast, the private banking departments of financial institutions mainly sell domestic products and do not have or only have limited overseas product offerings or global asset allocation capabilities.
-
Customer-centric investment advice and services
Given that high-net-worth wealth management service providers operate with an open platform model, the advice they offer is generally considered fair, impartial, trustworthy, and client-centric. High-net-worth wealth management service providers typically offer longer-term, less volatile investment products to navigate economic cycles. Therefore, financial advisors at these providers need to be more professional and mature to serve a wider range of clients and possess in-depth investment knowledge in both standardized secondary markets and alternative primary market investment products.
-
Tailored technology infrastructure
High-net-worth wealth management service providers typically have independent and customized technology infrastructure to facilitate high-net-worth client services, and provide relevant tools and features for internal use to financial advisors. In contrast, the private banking departments of financial institutions rely on the general technology infrastructure of the financial institutions.
Market competition pattern in China's high-net-worth wealth management service industry
The market for wealth management services targeting high-net-worth individuals in China is relatively concentrated. In 2021, the top ten participants in the industry accounted for approximately 64.0% of the total revenue. Noah Holdings is the eighth-largest wealth management service provider in China, focusing on serving high-net-worth and ultra-high-net-worth clients, accounting for about 3.7% of the market share. The top seven are all associated service providers of state banks.
The independent wealth management service market for high-net-worth individuals in China is also relatively concentrated, with the top five participants accounting for about 63.5% of the market share in terms of total revenue in 2021. Noah Holdings is the largest independent wealth management service provider in China, focusing on serving high-net-worth and ultra-high-net-worth clients, accounting for about 21.5% of the market share.
TradeGo, a subsidiary of Frost & Sullivan, has extensive research experience in the financial and business services industry, assisting well-known enterprises in successfully listing on the capital market. Successful listings include: Cadey Advisor (2176.HK), B&R Cloud Innovation (6608.HK), Excelerate Business Services (6989.HK), Huazhu (1179.HK), Zhongguancun Technology Leasing (1601.HK), Baolong Commercial (9909.HK), Travel Orange Culture (8627.HK), Yincheng Life Services (1922.HK), International Yongsheng (8441.HK), Xinyuan Property (1895.HK), Taihao Microfinance (1915.HK), China Index Holdings (CIH.NASDAQ), Haitong Hengxin (1905.HK), Asia Times (ATIF.NASDAQ), Liancheng Technology (8635.HK), Aoyuan Health (3662.HK), Joyoung (2168.HK), Ruwei Asset Management (1835.HK), TradeGo (8017.HK), Baiying Leasing (8525.HK), Ziyuan Yuan (8223.HK), Weixin Jinko (2003.HK), Huifu Tianxia (1806.HK), Tianping Daohe (8403.HK), Junyi Global Finance (8350.HK), Shengye Capital (8469.HK), China Art Finance (1572.HK), Xingzheng International (8407.HK), Bank of China Leasing (1606.HK).
Recommended Reading
12. Frost & Sullivan assists CIMC in successfully going public in the US (CIH.NASDAQ)
14. Frost & Sullivan assisted Asia Times in successfully going public in the US (ATIF.NASDAQ)
Frost & Sullivan helps Chinese art finance firm successfully go public in Hong Kong (1572.HK)
