CreditEase reaps rewards of transition from P2P lending platform to all-round wealth manager
CreditEase wins the best wealth management firm award in the inaugural Asiamoney China awards for the category, an acknowledgement of the firm’s rise from a peer-to-peer lending platform to a pillar of the maturing wealth management sector in China. Asiamoney spoke to Tang Ning, CreditEase founder and CEO, about the firm’s success story.
By Paolo Danese
In many ways, China has been charting its own path from an emerging to a developed market defying the conventions and models of the West. The uniqueness of China’s growth story could not be more evident than in the case of CreditEase, a firm which began as a P2P lending platform in 2006, a pioneer of marketplace lending in the Chinese market.
The firm has since built on its expertise and understanding of the needs of both borrowers and lenders to build CreditEase Wealth Management (CE WM). That bet on wealth management has grown into an international firm with over 2,000 relationship managers servicing more than 10,000 high net worth individuals. The firm has also seen rapid growth of its asset base, rising at an average pace of 50% for each of the past five years. All this, Tang told Asiamoney, is just the beginning. Not just for the firm, but for the wealth management market in China as a whole.
“I believe we had no wealth management industry in China until as recently as last year,” he says. “That is because Chinese investors have only just started to be driven by an asset allocation mentality, and not by short-term speculation and rumour-based investing focused on individual investment opportunities. A real wealth management company should side with the clients to help them construct a portfolio. It is only when institutions adopt the right behaviour and investors have the right thinking that you have an industry.”
Tang is a firm believer in the transformational role that a firm like his can have for an investment mentality still in its infancy. That immaturity is testified by local investors’ past addiction to short-term, high yielding products. That offering, while marketed as risk free, has revealed itself to be far from such, causing volatility and increased regulatory pressure on the market participants to limit risks to investors.
The transition is not a painless one, but investors are now engaging with the idea of building longer term, balanced portfolios. CE WM’s philosophy is to nurture that shift, guiding investors on a path to diversification that is better aligned with China’s broader economic trends.
“China is going global, and with it the high net worth and ultra-high net worth individuals,” Tang says. “This is an opportunity for them to look beyond China and to build a globally diversified portfolio that is split between cash management instruments, fixed income, private equity, and real estate both onshore and offshore.”
It is exactly that broad mandate that the firm is looking to service for its clients, although also a mandate that its very client base is still coming to terms with.
“We want to think about clients’ future investment needs rather than today’s. If we based ourselves on the current sentiment, we would be on the lookout for high yielding trust products, advising on which individual stock to own, or advising clients in which tier one city they should be buying their next apartment. But I believe that if those are your capabilities as a wealth management firm, you are already dead.”
An example of the approach is CE WM’s offshore capabilities. The firm started building a global offering as early as five years back, long before volatility in the renminbi exchange rate triggered a rush to overseas assets that was, inevitably, clamped down on by the regulators. The first step was opening in Hong Kong in 2013, followed by Singapore a year later. The firm launched an Israel office in 2015, followed by New York City and, later this year, one in Silicon Valley.
The approach is still to be glocal, a global platform with local teams and expertise, with the global expansion aiming to establish investment teams and boosting relationships with a broad range of foreign industry titans, which has resulted in partnerships with the likes of KKR, Morgan Stanley and Oaktree.
But the firm is not stopping there.
“In three years we built our immigration service from nothing to being top three in China,” Tang says. “And our overseas real estate investment flows have been doubling every month. The secret sauce is that we position differently from middle men. We are neither middle men nor service people, instead we have an investor mentality to help clients through the complexities.”
In its attempt to help local investors mature, the firm published in 2016 a whitepaper underlining what it calls the three golden rules of asset allocation: namely that a portfolio should be global, that it should be cross-asset classes, and that it should be long-term in nature.
One way the firm has embraced the crucial third rule has been via funds of funds (FOF) strategies. This is one of the firm’s cornerstones, which Tang believes sets the firm apart.
“For an individual to invest in a single new economy firm is as risky as picking individual stocks. Even when buying into a single fund, the investor would need to know how stable the fund’s team is and really understand their strategy. But even so, a single fund will never be able to excel at all stages of growth. That is why we believe the investor’s best shot is to invest in FOFs, which can cut across sectors and growth stages.”
Another key step in what the firm views as the coming of age of China’s investment culture was the launch of the CE WM robo-advisor service. For the growing strata of mass affluent investors, Tang sees technology as revolutionary. The mobile app allows investors to define investment objectives, risk tolerance, and suggests a portfolio based on such customised criteria.
The app typically orients investors towards an unleveraged mix of exchange-traded funds investing in developed and emerging markets stocks and bonds, global real estate indices, and gold funds. Crucially, such funds are typically low cost and very liquid, with the robo-advisor able to adjust exposures in real time and 24/7.
“For the first time, the middle class has an investment solution it can rely on to build a portfolio that can last 20 to 30 years. Banks can offer you some insurance and funds products, but they will not be able to offer the product range that investors really need.”
The firm has invested heavily in its fintech capabilities to reach those results, acknowledging the challenge of having technology and investment experts cooperate and empower each other. But the firm’s origin as a P2P fintech lending platform was a boost. “I believe any winning wealth management firm should be good at technology. CE is already a global fintech leader and this helps our wealth management arm.”
A new dawn
As for the evolving landscape of wealth management firms in China, CE WM believes investment capabilities will be the key to success. And the criteria for that will be the firm’s ability to develop an offering that does not merely rely on distributing big name products to its client base, but instead always questioning whether successful products in the past are the right ones for investors’ future.
Tang says his approach has much to do with his past as a pioneer angel investor in the Chinese market, which he returned to in the early 2000s and made the leap from investment banker to venture capitalist.
“In my work as an angel investor in China I had to go into these firms to build teams, strategies, and learned a lot in the process about analysing early stage opportunities, pick out the winners. As an angel investor, you need a framework to look into the future. The CreditEase organization has this same investment DNA.”
Looking down the road, Tang expects much of the firm’s work will be devoted to investor education. Alongside that, CreditEase expects to remain a market leader in the space. “It took us 10 years to create the P2P lending industry, it will probably take another decade to create a wealth management industry in the right shape and form.”And despite the challenges that come from building industry practices from nothing, Tang does not shy away from the social implications of such an endeavour.
“Finance is an industry that heavily involves risk management, compliance and social responsibility,” he says. “We cannot simply try things like any internet company would do, launching 10 products and hoping one will be a success. We have to try and succeed in what we do, always. We have to minimize trial and error and continue to be prudent, managing risks well. That is why investor education will be key.”