Targeting High-Net-Worth Clients: Public Funds Build "Second Growth Curve"

Currently, several public fund management companies are turning their attention to high-net-worth individuals, striving to generate additional profits through separate account products (also known as “specific client asset management plans”). However, with the booming private equity quantitative funds and limited enthusiasm from bank channels, achieving this goal is not easy.

Public Funds Focus on Separate Accounts to Seek a “Second Curve”

Since March, the popularity of public fund separate account products has exceeded expectations.

According to public information, many fund companies such as Xingzheng Global and China Europe have seen strong investor interest in their separate account products, with some products selling out. A Shanghai Securities News reporter learned that the currently popular products are mainly FOFs and “Fixed Income +”, with the former emphasizing特色, and the latter focusing on stability.

“A recent popular separate account product is an FOF,” said a senior wealth manager at a commercial bank. “The product has a flexible structure, allowing underlying assets to include various private equity products, especially quantitative private funds, with management fees only at 1%, making it quite attractive to high-net-worth clients.”

The wealth manager also mentioned that stable “Fixed Income +” products are also popular. “For example, a ‘Fixed Income +’ product, after deducting management fees, has an annualized return of about 3% to 4%, which clients like, and the flow has been steady. More equity-oriented products, such as enhanced products linked to the CSI 1000 or CSI 2000 indices, or other index-tracking quantitative products, have annualized returns after management fees ranging from 0% to 8%, starting at 400,000 yuan, with management fees between 1.2% and 1.5%. These are also gaining some popularity,” he said.

Addressing Client Needs and Discovering Differentiated Advantages

Public fund separate account products are a type of asset management service aimed at qualified investors and are not publicly offered. Their fee structure differs from mutual funds and is closer to private equity funds, typically combining “management fees + performance fees” to deeply align the interests of managers and investors.

For a long time, the development of fund separate accounts has been characterized as “like drinking water—only the drinker knows if it’s warm or cold,” with institutions leveraging their own strengths and capabilities to carve out market segments and fully utilize their differentiated advantages. A person from a southern fund company said that in recent years, the overall growth of separate account business has been evident, mainly due to three reasons:

1. Growing client demand. In the context of low interest rates, increased market volatility, and asset yield divergence, clients’ demand for multi-asset, multi-strategy solutions that emphasize drawdown management has significantly increased. There is also a heightened need for professional services, customized solutions, and long-term companionship.

2. Changes in industry competition. More institutions are focusing on client retention, asset retention, and long-term service value. High-net-worth clients typically have strong asset accumulation capacity and high service stickiness, making them a key focus for various wealth management institutions.

3. Channel transformation needs. Banks, securities firms, and other wealth management channels are accelerating their shift from product distribution to comprehensive wealth management, which raises higher requirements for products and services that meet high-net-worth client needs and promotes the development of such businesses.

Industry insiders say that in recent years, high-net-worth clients have become one of the most important customer groups for public fund separate accounts.

“Different financial institutions have completely different thresholds for defining high-net-worth clients,” analyzed a person from a Shanghai-based fund advisory firm. “Fund companies’ separate account thresholds start at 300,000 yuan, while some banks’ high-net-worth thresholds are in the hundreds of thousands or millions of yuan, creating a significant gap.”

“We mainly serve the mass market, but also tailor some services for high-net-worth clients based on our fund advisory qualifications and resources. For banks, high-net-worth clients are usually private banking clients with assets in the millions of yuan. For private banks, these clients might be considered ordinary clients, with limited services and rarely personalized strategy management advice. But with us, whether in investment professionalism or service quality, it’s much better. This is also a key point of differentiated competition,” he added.

In fact, regarding investment itself, fund companies have certain advantages. A person from a southern fund company said: “Fund companies have long been focused on standardized asset investment, accumulating mature research and investment management capabilities in equities, fixed income, multi-asset, and quantitative fields, which provides strong underlying support for separate account business. The public fund industry’s risk control and compliance systems are relatively complete, with high market recognition and customer trust, which helps establish a solid customer base in separate account services.”

Uneven Channel Enthusiasm: Opportunities and Challenges

Pursuing separate accounts is no easy task. “Customer competition in the separate account field is a tough battle,” said a market department staff member of a fund company. “Since the implementation of the Asset Management New Regulations in 2018, the separate account business has entered a new phase of regulation. Many companies’ separate account sizes have shrunk; currently, our company’s separate account scale is only about 200 million yuan.”

Bank channels show only moderate interest in public fund separate accounts. “If a client asks about it, we just recommend it; if not asked, we don’t mention it,” said a senior wealth manager at a Shanghai bank branch. “For us, selling public fund separate accounts doesn’t come with extra incentives or bonuses; we only evaluate based on completion rates. So we don’t have particular preferences; we focus on matching products with investor needs.”

Meanwhile, some third-party channels are more actively developing the high-net-worth client segment. “We’ve been laying out for some time now, hoping to find profit breakthroughs through a more diverse client structure,” said a senior third-party channel manager. “Many top third-party channels have set up VIP zones to provide better services for different client tiers.”

Despite many challenges, where there is wind, some are eager to try “flying.” As the single market continues to adjust, asset allocation has become a new approach to serve high-net-worth clients.

According to China Europe Wealth, in recent years, the investment demands and preferences of high- and ultra-high-net-worth clients have shown two major changes: one, shifting from yield-focused to experience-focused; and two, moving from single-asset to multi-asset allocation strategies.

“Around 2024, we plan to expand into overseas and multi-asset advisory strategies, and launch a ‘target profit strategy’ based on absolute return concepts to meet investors’ needs for diversified asset allocation and steady wealth growth,” said a China Europe Wealth representative. Another third-party advisory professional noted that as clients’ investable assets increase, their needs will gradually shift from single-product allocation to comprehensive wealth management, including account management, multi-category asset allocation, family financial planning, and long-term companionship.