Fund managers’ margins could face pressure over online platforms, says report

28 April 2014   Category: News, Asia, China, Global   By Daniel Shane

Online wealth management platforms, such as China’s popular Yu E Bao, could result in thin or even negative margins for the fund managers that use them, research by financial consultant Cerulli Associates warns.

Yu E Bao, which translates into “Lost Treasure” in English, was launched in 2013 by Alipay, an affiliate of ecommerce giant Alibaba, and was reported to have 185 billion RMB (US$29.57 billion) in AUM at the end of last year. The fund is managed by Tianhong Asset Management, which at the close of 2013 was said to have grown into China’s second largest fund management company.

Yu E Bao, which Tianhong says has more than 81 million investors, predominantly invests in short-term money market funds, such as interbank deposits at some of the Mainland’s largest banks. 

However, a report by Cerulli said that such online platforms faced a number of challenges, including lack of regulatory oversight and could put pressure on fund managers’ margins if they began investing outside of short-term money market funds.

"It is questionable if distribution of products other than short-term money market funds can be a feasible proposition for online retail platforms. The holding periods of these investors might be short and volatile, and heavily dependent on their behaviour in online spending on other retail products," says Felix Ng, a senior analyst with Cerulli, who also led the report.

"It remains a moot point where the onus of providing investor protection will land as platforms such as Alipay are currently merely viewed as digital infrastructure facilitating fund sales," adds Yoon Ng, Cerulli's Singapore-based director of Asia-Pacific research.

Mainland savers have been drawn to Yu E Bao on the back of annual interest rates which have topped 6%, compared to those of savings accounts at major banks, which offer a rate of just 0.35% per year.

Following the success of Yu E Bao, fellow Chinese Internet giants Tencent Holdings and Baidu have come out with rival products.

Several of the Mainland’s major lenders, including Bank of China and Industrial and Commercial Bank of China, have placed limits on how much their savers can transfer to online payment services such as Alipay in an attempt to control the flow of capital into such wealth management products.