The following is the 2021 global asset management center evaluation index From China Europe Lujiazui Institute of International Finance recommended by recordtrend.com. And this article belongs to the classification: Investment & Economy.
1、 Significance and purpose of index compilation
By 2020, Shanghai has basically built itself into an international financial center with global influence. In the opinions on accelerating the construction of Shanghai Global Asset Management Center issued by the Shanghai municipal government in May and the 14th five year plan for the construction of Shanghai International Financial Center issued in August this year, it is pointed out that we will strive to build Shanghai into a comprehensive city with high concentration of elements in the field of asset management, high internationalization level and complete ecosystem by 2025 The open asset management center has become an important hub of asset management in Asia and has entered the forefront of global asset management center cities.
To achieve this goal, we first need to track the development trend of the global asset management industry, understand the gap between Shanghai and the global mature asset management center, and clarify the direction of Shanghai’s efforts to build a global asset management center. The index, especially the index of representation class, is a tool to show the trend and gap in a simple and clear way. This is one of the purposes of compiling the global asset management center index.
The second purpose is to improve the soft power of Shanghai international financial center. According to international experience, the index of the financial industry is not only a “barometer”, but may even develop into a wind vane of the financial market and one of the influencing factors of capital flow. Compiling the global asset management center index and launching a series of international research projects and exchange activities around the index will significantly enhance Shanghai’s influence and voice in the global asset management industry.
Based on this, China Europe Lujiazui Institute of international finance has concentrated its advantageous research forces to independently develop the “evaluation index of global asset management center”, which aims to find gaps, deficiencies and directions through benchmarking analysis with the world’s leading asset management center.
II. Basic logic of index compilation
First, the core of the asset management center is the asset management organization, which is mainly reflected in the size of asset under management (AUM). This scale is the total market value of the portfolio managed by financial institutions on behalf of customers, which reflects not only the inflow and outflow of specific funds, but also the price performance of assets. Capital inflow and capital appreciation will increase the scale of asset management, while performance loss, capital outflow and investor reduction will lead to the decline of its market value.
Second, the asset management industry can be divided into demand side, supply side and intermediary side, with different advantages, as shown in the table below.
Third, the competitiveness of asset management center is closely related to the financial system. Globally, the main body of asset management institutions is investment banks, which mainly serve the capital market, which is the fundamental feature that distinguishes them from commercial banks. Therefore, the international financial center dominated by the capital market is often the leading asset management center, while the asset management industry of the international financial center dominated by banks is relatively weak.
III. methods and principles of index compilation
Since the competitiveness of the global asset management center is based on the competitiveness of the international financial center dominated by the capital market, this index selects 30 major international financial centers in the world as sample cities, and establishes the following compilation principles:
First, focus on quantitative indicators. Quantitative indicators are objective and comparable, avoiding the fuzziness of the index and the discontinuity of the data.
Second, in terms of weight design, highlight the core of asset management business, that is, asset management scale.
Third, highlight the infrastructure function of the exchange in asset management to reflect the different characteristics of the asset management industry and other financial industries.
In terms of statistical methods, in order to more clearly show the gap between global asset management centers, the index carries out factor analysis and statistical evaluation according to different sub areas and through SPSS software, and sets the score of the first city as 100 points, and the scores of other cities are converted in the same proportion according to the evaluation data results. Then, the weight of the subdivided areas is calculated and aggregated to obtain the comprehensive score.
IV. index system
The index system is divided into three levels. First level indicators distinguish the business basis and business performance of asset management. The secondary indicators are further subdivided to measure the business foundation of the asset management center from four aspects: capital supply (including domestic capital pool and overseas capital inflow), business foundation, talent reserve and underlying assets; Measure the business performance of the asset management center from four aspects: asset management institutions, open-end funds, ESG (environmental, social and Governance) business and alternative assets. The third level indicators reflect the specific information of a certain level, with a total of 48, including 46 regularly updated quantitative indicators and 2 qualitative indicators.
Table evaluation index system of global asset management center
Explanation of main indicators:
(1) The capital sources of asset management are bank deposits, insurance funds, pensions and foreign exchange reserves (sovereign wealth funds come from foreign exchange reserves). Since funds can flow freely within a country, these indicators can be used in different cities in the same country.
(2) Balance of payments accounts are divided into current accounts and capital financial accounts. The financial and insurance service trade account and non reserve financial account mainly reflect the net inflow of overseas funds.
(3) The driving force of asset management capital inflow mainly comes from the expectation of a country’s economic growth and the driving force of domestic and foreign interest rate spread, which is reflected in the expected growth rate of GDP, long-term treasury bond yield and stock market yield in that year.
(4) The research shows that the common law system is more suitable to develop the capital market than the civil law system, and the capital market is closely related to the asset management business. Therefore, the financial system dominated by the capital market is more conducive to the development of the asset management center than the financial system dominated by banks.
(5) The degree of FDI regulation (financial industry and Commerce) is assigned by OECD, with a range of 0-1. The higher the value, the higher the degree of capital flow control. Capital inflow is positively related to the scale of asset management, so the higher the FDI control, the more negative the impact on the asset management center.
(6) Taking into account the differences in industrial structure and currency, the number of employees in the financial industry is divided by the number of people in the tertiary industry, and the average wage in the financial industry is divided by the local average wage to eliminate the relevant impact.
(7) Products with high asset management scale usually have higher market trading volume and more liquidity. Therefore, the trading volume of on-site (stocks, bonds, futures) and off-site (foreign exchange derivatives and interest rate derivatives) is used to fully reflect the underlying asset supply capacity of the asset management center.
(8) Asset management institutions are the core of asset management business. Their strength is mainly reflected in the scale and global ranking of local head asset management institutions and the number of local branches of global head asset management institutions.
(9) At present, the proportion of open-end funds worldwide is as high as more than 90%. Therefore, the scale and quantity of net assets of open-end funds are an important reflection of asset management business.
(10) ESG business has become an important field for the sustainable development of the global economy. Since the epidemic in 2020, ESG financial products have accelerated their expansion, which is the main innovation direction of the asset management industry.
(11) In the process of economic recovery, a series of problems have emerged in the traditional investment market, such as over valuation, limited correlation between fixed income and stocks, continuous decline of bond yield and asymmetric risk. More and more asset management investment strategies have turned to aid (alpha, income, diversity) investment in pursuit of excess returns. These alternative investments have become indispensable in the portfolios of global investors.
V. index results
（1） Comprehensive evaluation
The weights of the eight sub areas are respectively assigned as follows: capital supply 10%, business foundation 10%, talent reserve 20%, bottom assets 20%, asset management institutions and open-end funds 30%, ESG business and alternative assets 10%. According to the results of the combined sub scores, New York ranks first in the world, followed by London and Boston. Although London ranks second, it has a gap of nearly 8 points with New York and only 2 points ahead of Boston, indicating that the strength of the second echelon is similar and there is a large gap with the first echelon. Hong Kong, Singapore, Paris, Los Angeles, Shanghai, Chicago and Tokyo have a score gap of less than 2 points. On the whole, they have the same strength and belong to the third echelon. In addition, Luxembourg, Dublin, Toronto, Frankfurt and Zurich are also very competitive, and are expected to be among the top ten global asset management centers in the future.
Ranking of global asset management centers (2021)
（2） Sub domain evaluation
Different asset management centers have different advantages. For example, New York is leading in many aspects, but it is not prominent in ESG business and alternative asset allocation; Luxembourg, Dublin and other European asset management centers are just the opposite. In addition to asset supply and underlying assets, Shanghai’s competitiveness in other fields is weak. Hong Kong stands out in terms of its business foundation and talent pool.
Table ranking of major segments of Global Asset Management Center (2021)
Note: 1. “Fund supply” and “institutional support” are national indicators, so New York, Chicago, Boston and Los Angeles rank the same and score the same. Rank them for clarity only.
2. The data in brackets are weights.
Figure ranking of major sub sectors of Global Asset Management Center (2021)
1. Capital supply (including domestic capital pool and overseas capital inflow)
Note: the secondary indicators are national indicators, so the ranking of cities in the same country is consistent.
2. Business foundation
Note: the secondary indicators are national indicators, so the ranking of cities in the same country is consistent.
3. Talent reserve
4. Underlying assets
5. Asset management institutions and open-end funds
6. ESG business, alternative assets
Vi. index analysis
（1） Asset management centers can be divided into intermediary type, overseas type and balanced type
From the two dimensions of asset management business scale, there is a huge difference between the local business scale and the business scale of asset management companies with local headquarters. According to the ratio of the two, global asset management centers can be roughly divided into three categories: the first category is Luxembourg, Singapore and Hong Kong (the ratio of Luxembourg is as high as 98.3, which is not shown in the figure), and its ratio is higher than 3; The second is Paris, Toronto and Zurich, whose ratio is less than 1; Other cities are the third category, with a ratio of 1-3. They can be named as intermediary, overseas and balanced asset management centers.
The capital source of intermediary asset management center is mainly overseas, and its local can provide rich asset management products and services. Overseas asset management centers have a good business foundation, but may be subject to factors such as low market rate of return. The vitality of the local capital market is relatively limited. Asset management institutions mainly focus on the layout of overseas asset management products. The balanced asset management center is equivalent to the scale of the overseas market in terms of capital supply and product supply.
Figure ratio of two dimensions of asset management business scale
（2） London was significantly dragged down by brexit
The conclusion of this index shows that London is not the first tier of Global Asset Management Center for two reasons:
First, from the perspective of the supply of the high-yield market, the overall risk of the UK market is low and the profit space is small. Because the risk is directly proportional to the return, for investment banks and hedge funds aiming at the return rate, the profit space in the UK is much smaller than that in emerging economies. Therefore, the UK is still the second international financial center in the world, with its commercial banking and foreign exchange business leading the world, but it is not dominant in the overseas layout of multinational investment banks. For example, in the main overseas asset management business announced by Goldman Sachs Group in 2020, the proportion of the UK has decreased to less than 10%, which is lower than that of the Chinese market (including the mainland, Hong Kong, Macao and Taiwan).
Second, from the perspective of intermediary business, the negative impact of brexit on London has begun to appear. First, labor mobility barriers weaken London’s human capital. According to the brexit agreement, the current provisions on the free movement of EU personnel are no longer applicable to the UK, and vice versa. At the end of 2020, about 1 million EU citizens lived in London, of which about 10% were in the financial industry and 10% were in business and professional technology.
Second, the size of the London stock market has shrunk sharply. Since the first trading day of this year, the trading volume of shares denominated in euros on the London exchange has decreased by 50% year-on-year. The stock trading of many large multinational enterprises has been transferred to other European Union stock exchanges, mainly Paris, Amsterdam and Frankfurt.
In addition, transnational financial institutions transfer assets to the EU. As the brexit agreement only involves trade in goods, the UK financial services industry has lost the right to operate freely in the EU market, and the UK EU financial services trade negotiations are still in progress. At the same time, due to EU regulators’ restrictions on EU enterprises and investors to purchase the services of financial institutions outside the EU (including possible restrictions on asset managers outside the EU to manage EU funds), transnational financial institutions have been transferred one after another.
（3） Intermediary asset management centers such as Hong Kong have developed rapidly
Intermediary asset management centers have common geographical characteristics, that is, they are surrounded by large economies and they are open small economies. This makes its capital market have siphon effect, and the ratio of trading volume of on-site and off-site financial products to GDP is much higher than that of other economies, resulting in the endogenous development of the asset management industry.
Luxembourg is located between Germany and France, adjacent to Belgium, the political center of Europe. It is the European headquarters of multinational banks and hedge funds. Luxemburg exchange is the world’s largest green bond exchange. In 2020, the vast majority of ESG ETFs were established in Europe (73%), of which Luxembourg is the largest single host country, holding nearly 30% of the global market share in terms of asset size. This fully reflects the mature and advanced regulatory environment of Luxembourg’s sustainable investment market.
Backed by the hinterland of mainland China, Hong Kong is very sensitive to China’s trade policy and monetary policy. So far, it is still the only window connecting the global capital market when China’s capital account has not been fully opened. Especially since the epidemic, China’s economic growth has led the world. RMB financial products and businesses have great attraction to global investors. The expansion of investment and financing channels such as stock and bond links has rapidly improved Hong Kong’s competitiveness as a global asset management center.
Similarly, as an open economy of small countries and an international financial and shipping center in Southeast Asia, Singapore is the de facto core country of ASEAN and has profound trade and economic ties with ASEAN countries. Since it is difficult for small economies in Southeast Asia to build an exchange market with the same liquidity as northeast Asia, Southeast Asian enterprises, governments and international investors are very dependent on Singapore’s capital market. This dependence promotes the Singapore Stock Exchange to collect major stock index futures products in Asia, making the stock index futures markets of various countries become Singapore’s “shadow market”. In recent years, RMB related financial products have also attracted a large number of international investors to gather in Singapore.
VII. Enlightenment of the first phase index on Shanghai’s construction of a global asset management center
（1） Advantages of building a global asset management center in Shanghai
First of all, China is a big country. Shanghai has great advantages in capital supply and bottom assets (especially scale). China’s bond yield and the long-term appreciation trend of RMB will become the main driving force of overseas capital inflow for a long time.
Secondly, Shanghai has the potential to make breakthroughs in the landing of overseas asset management institutions and talents. Now the global epidemic continues, and China’s appropriate epidemic prevention measures have great attraction to the return of overseas Chinese and the landing of overseas asset management institutions. If the pilot reform is promoted in terms of tax rate, it will significantly improve the reserve of asset management talents and the internationalization of asset management institutions in Shanghai.
（2） Gap between Shanghai and mature asset management center
According to the evaluation of subdivided areas, Shanghai has obvious gaps in business foundation, asset management institutions, ESG and alternative asset business.
First, the gap of business foundation comes from that China is a bank led financial system (i.e. indirect financing) and legally a civil law system, which has less support for the development of asset management industry than the capital market led financial system (i.e. direct financing) and common law system. In addition, according to OECD data, although China’s financial industry has accelerated the opening up in recent years, the degree of FDI control in the financial industry and commerce is still high, which limits the flow of capital and senior management talents. The capital gains tax and enterprise tax rate are also much higher than those of small economies such as Hong Kong, Singapore and Luxembourg.
Figure: degree of FDI regulation (2020)
Figure: main tax rate% (2020)
Second, the competitiveness of asset management institutions lies in the scale of asset management. At present, none of the asset management institutions headquartered in Shanghai can rank among the top 100 in the world, while 10 in New York and 6 in London rank among the top 50 in the world. As a result, the total management scale of the top 10 asset management institutions headquartered in Shanghai is only more than US $200 billion, while the total management scale of the top 10 asset management institutions headquartered in New York is as high as US $23 trillion. The world’s top 50 asset management institutions have 31 branches in Shanghai, which is also significantly less than that in New York and London, 43 and 41 respectively.
Figure: headquarters effect of local asset management institutions (2021)
Data source: all asset management institutions
Figure: number of local branches of the world’s top 50 asset management institutions (2021)
Data source: all asset management institutions
Third, Shanghai’s asset management innovation business is still in the initial stage of development in terms of quantity and scale. Although there are more than 1200 ETFs in the above stock exchange, ESG has only 10 ETFs, which is far less than the asset management centers in Europe and the United States. Although the proportion of alternative asset allocation in Shanghai public funds is not low (about 10%, higher than 5.8% in Hong Kong, lower than 21.2% in Singapore and 16.3% in Dublin), it is also small because of the small overall asset management scale in Shanghai.
（3） The new development trend of global asset management industry and the opportunity for the construction of Shanghai asset management center
Judging from the asset management scale of asset management institutions in the first half of 2021, the global head institutions are still concentrated in European and American countries. Although their product categories are diversified, they are still dominated by stable equity and fixed income products. A large number of small asset management institutions mainly allocate their assets to alternative assets such as real estate, hedging, private equity and venture capital. Overall, proactive strategy is still the mainstream.
However, due to the decline in management fees, profit margins and changes in investor preferences, the competitiveness of the mutual fund industry with active strategy as the core began to decline. Technological progress and cost reduction also promote the rapid increase of products using direct indexation and customized portfolio (i.e. passive investment). The market share of active strategic products in the whole market has decreased significantly. On the one hand, it has led to more integration between asset management and wealth management, which has accelerated private investment. On the other hand, it has also led to the stagnation of the growth rate and peak scale of mutual funds. Take the United States as an example. The number of mutual funds in the United States decreased by 258, or 3.3%, year-on-year in June this year; The capital outflow was US $104.1 billion, but the net assets benefited from the good rising trend of the stock market, but increased by 21.5% to US $4.6 billion. The overall trend shows that small mutual fund companies may be acquired or eliminated, and the asset management scale will be further concentrated on the head companies. This trend will spread all over the world in the future, and public funds in Shanghai may need to make adjustments in advance.
In addition, alternative investments have become indispensable in the portfolios of global investors. Now the market generally believes that the global loose monetary policy will continue until at least 2022. When the rise of interest rate and inflation occur at the same time, even if the bond yield rises, there is still room for core physical assets to yield. Therefore, more and more investors pursuing yield allocate funds to core infrastructure, and REITs is rapidly becoming a standard part of asset allocation of asset management institutions. REITs has a development history of more than 60 years in the international capital market. It is a rapidly developing and relatively mature financial product, but it is still a new thing for the domestic capital market. According to regulations, China’s infrastructure public offering REITs are listed and traded on the stock exchange. Shanghai stock exchange currently has 6 REITs. In the future, it needs to closely follow the national strategy, focus on high-quality projects, actively promote more product listings, and give full play to the intermediary function of the asset management industry to connect investors and the real economy.
The first phase of the global asset management center evaluation index preliminarily reveals the development direction of building a global asset management center in Shanghai. The first is the introduction of institutions. Promote the innovation of green asset management products, guide leading asset management institutions at home and abroad to allocate China’s green assets and serve China’s “double cycle” strategy. At the same time, capital needs to be introduced. Promote the two-way flow of capital and talent, develop intermediary services, and become an important platform for global asset allocation; On the above basis, we will gradually expand the overseas layout of China’s financial groups and provide overseas investment services for domestic pensions, sovereign wealth funds, insurance companies, banks and individuals. More reading: energypolicy Tracker: G20 countries pledged to invest US $576.82 billion to support energy development CrunchBase: in 2018, Chinese start-ups have invested US $93.8 billion in Merrill Lynch fund manager: the survey conclusion is bullish on Europe and bearish on emerging markets Commodities and bonds five new trends in the U.S. fund industry in 2015 Zhenge Fund: investment is the philosophy of looking at people. In the third quarter of 2018, the Japanese government pension investment fund lost about 14.8 trillion yen. PE giant Carlyle roadshow ppt analyzed the whole process of private placement giant dnamba perspective: is spotify worth investing? After studying 1400 transactions, We found six key points for successful M & A. coupang: raised US $100 million in May 2014 with a valuation of 1 billion CB insights: investment transactions of robot start-ups fell for three consecutive quarters. Private equity: 137 investment cases in China in September 2014, the Internet accounted for 35.8% CB insights: venture capital in the robot industry increased by 115% in 2015. Zuo Yu research: large market points of TMC enterprises at home and abroad, What are the opportunities for entrepreneurs? Tencent: 1q20’s total revenue was 108.065 billion yuan, a year-on-year increase of 26%
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