This is the second issue of the new column of your DigiBook that helps you follow market penetration of big tech companies: GAFA – for Google, Apple, Facebook,Amazon, to which are sometimes added Netflix and Microsoft – in the U.S., and BAT – for Baidu, Alibaba and Tencent – in China.
You will find here under the latest news of these big tech firms’ advances in the asset management industry.
To read our former edition, click here
Funds distribution: Chinese tech giants’ digital wallet boost MMF growth in China…
China’s regulator enforced stricter liquidity and risk management requirements on money funds in Sept. 2017 due to concerns over surging systemic risk. Despite this, Tianhong Yu’e Bao, the world biggest MMF, has attracted 114 million new investors in 2018, bringing to 588 million –more than a third of the Chinese population– the number of people who have deposited money on the fund.
However, the AuM has sharply decreased from $233bn to $168bn during 2018 due to this new regulation and that’s why both Alibaba and Tencent has decided to open up their shelf space to nearly 20 new money market funds.The two platforms previously sold only five MMFs. The 18 added ones garnered more than Rmb772 bn ($114bn), which equated to around 95% of China’s MMF growth during the year. This helped push China’s MMFs to a record high of Rmb6.8 trillion ($1tr+) as of the end of November.
Alibaba’s Alipay introduced 13 new MMFs from May last year, switching from using Tianhong Asset Management’s Yu’E Bao as its sole default investment products for users wishing to earn yield with their idle cash. Meanwhile, Licai Tong –the wealth management platform linked to Tencent’s digital wallet WePay– embraced five more MMFs. A sixth fund, PingAn Fund Management’s Rizengli MMF, was added to Licai Tong early January this year.
… and are expecting to do the same in Hong Kong
In Hong Kong, a handful of new MMFs have been launched recently by subsidiaries of Chinese fund firms (China AM Hong Kong, Da Cheng International AM, E Fund Management Hong Kong and GaoTeng Fund Management, partly owned by Tencent), hoping that retail investors will switch their savings deposits into these vehicles.
The driver behind the creation of these new MMFs has come from Tencent and Alibaba that are planning to establish various online distribution channels in Hong Kong and hope to replicate the success of their distribution model experienced in China (open-architecture third-party online fund sales channel and e-Wallet offering MMFs with real-time redemption). Thus,Chinese fund firms have been instructed by the two tech giants to design and launch new MMFs –compliant with digital mobile payments–, build track records and gain support from banks and custodians. Seeing the potential in the city-state, they also expect to put pressure on regulators to facilitate market entrants with a growing number of funds.
Tencent,that expects to be among the first recipients of a virtual banking license in Hong Kong, has also backed Hong Kong-based online brokerage Futu Securities International which sells mutual funds –including GaoTeng WeInvest Money Market Fund– to its 450,000+clients and allows investors to trade local and U.S. stocks. The combination of virtual banking and e-wallet services could provide the framework for a company like Tencent to leverage for online fund distribution in the future and offer a range of potentially lower cost products to HK investors.
To read our former article on e-Wallet, click here
And Alibaba is not only focusing on MMF distribution…
Ant Wealth, Alibaba-affiliated open-architecture third-party fund distribution platform, has doubled the number of its investors base, contributing significantly to a surging number of new clients for some fund firms [1].Thus, while the number of users on Ant Wealth grew by 110% in 2018, the number of users investing in funds via regular savings accounts surged by 210% during the same period. As of end-September 2018, online fund distribution accounted for more than 80% of China’s overall fund sales volume.
For example, according to its CEO, China Asset Management, one of China’s top five largest firms, saw its investors on Ant Wealth multiply five-fold, and the number of regular savings accounts triple in 2018. For its part, Invesco has collected $14bn and quadrupled the assets managed by its local joint venture, Invesco Great Wall.
Since March 2017, 68 Chinese fund houses, representing half of the country's mutual fund houses, have opened their “Wealth Account” on Ant Wealth, a type of virtual shop providing a range of fund services.
Ant Financial (Alibaba’s financial services affiliate) attributed this growth to the technology it has adopted to help its operation and marketing efforts, which include big data, artificial intelligence and cloud computing. Ant Wealth shares blockchain and intelligent risk control with its fund house partners, and can offer investor profiling throughout the operational process of fund sales.
… neither Chinese territory
Since its launch in Sept. 2018, India's Paytm [2] Money, a mutual buy & sell funds app, has attracted more than one million users and has partnerships with nearly 34 asset management firms including SBI MF (covering over 94% of industry AuM) and rating firms Morningstar, CRISIL and Value Research.
Paytm also announced in January that its platform is debuting a free-of-charge aggregation feature,which enables users –who have tapped numerous channels– to track daily performance of their complete mutual fund holdings, including fund firms, banks, advisors and distributors assets.
Financial institutions will have to combine with tech giants
As seen above, the movement of combination between banks, asset management companies and Big Techs has already started. This requirement is also one of the conclusion of both World Retail Banking report (Cap Gemini / Afma – 2018) and the opinion of Schroders’ Head of global distribution marketing: “Collaboration[between tech giants and AM] could form part of a “new model” for the distribution of investment products” even if, he argues, GAFAs are still worried about the regulatory aspects of the sector.
Negotiations have already begun. Vanguard for example would be in talks with Ant Financial to set up a joint venture aimed at offering investment advisory services in China [3]. The move comes as the local regulator is contemplating a new legal framework that will better regulate investment advisory institutions, including robo-advisors, in the country. Indeed, in China, the fee-for-advice model that helped propel the growth of low-cost funds in the U.S. is largely absent. Vanguard and Ant Financial are hoping to obtain an investment advisory license under the new regulatory framework.
Fund management: Tencent launches hedge fund in HK
A few months after the launch of its first retail “WeFund series” fund in Hong Kong, the GaoTeng Asian Income fund, GaoTeng Global Asset Management, the joint venture between Tencent and Hillhouse Capital, has rolled out a private strategy emerging-market corporate bond hedge fund that will be overseen by a former Nomura trader (Source: Bloomberg). That fund can manage up to US$3bn and will focus on dollar-denominated debt.
Investments: Chinese tech giants brought dynamism of 2018 Fintechs’ fundraising
46% of the world's$55.3 billion in fintech investments last year went to China. AI and Blockchain concentrate most of the funds raising (more than 8 of 10 Fintechs). Ant Financial accounted for 35% of global venture capital investment in Fintech firms last year (Source: CB Insights). Alibaba’s financial arm has even concentrated 70% of the € 27.4 billion of global capital raised in the Fintech in the first half of 2018 (Source : BCG).
China is also the home of the second biggest fundraiser: $4.3 billion went to Du Xiaoman Financial,which is linked to web search engine provider Baidu.
Services : Blockchain as a Service grew on both shores of the Pacific Ocean…
Many companies have started taking Blockchain seriously, especially in the asset management industry, where many PoC and even industrial developments are in progress . But, because of technical complexity, few companies intend to adopt it in a short term period.To facilitate the process, some companies have started to develop a Blockchain as a Service (BaaS), a cloud service based on the SaaS (Software as a Service)model, which consists in setting up, configuring and managing a Blockchain infrastructure for clients to allow them to develop and implement their applications in this technology. And Big Techs are among the first to offer this service.
Microsoft Azure Blockchain Service – included into Azure, the leader of data storage and transaction services for banks– allows to develop, test and deploy secure Blockchain applications (with Corda, Ethereum or Hyperledger Fabric).Nasdaq has already planned to integrate it into its Financial Framework (NFF). Simultaneously, Microsoft has launched a highly customizable ICO Platform with KYC integration: Stratis ICO, allows startups to run a secure and flexible web-based application that enables buyers to purchase tokens before the point of initial allocation. For its part, Amazon Web Services (AWS) has developed its BaaS service: Amazon Blockchain Templates, which facilitates project development and creation of applications based on Ethereum or Hyperledger Fabric (video).
On Chinese side, Alibaba has launched its BaaS offering in several markets including Europe. The service helps users create secure environments for Blockchain implementation on the Hyperledger Fabric and Ant Blockchain frameworks. Baidu Blockchain Open Platform is a BaaS platform based on proprietary technology to facilitate transactions and their tracking.
… and search engines are adapting to this technology
Google had stayed away from this technology. The company finally combined its expertise in Big Data and Search Engines to create a search engine for the Blockchain: "Blockchain ETL". More than 500 projects have been created since then. The tools makes it possible, for example, to predict the price of Bitcoin or to analyze the disparities between all Ether portfolios.
Baidu has launched a blockchain operating system called Baidu Blockchain Engine (BBE) to simplify the development and deployment of distributed applications. The system would have already proven itself in various scenarios including the collection of financial data or the securitization of assets.
Ant Financial & Microsoft put their technology at the service of Asset Managers
Ant Financial, in partnership with Hoperun, unveiled in March its Distributed Core Banking Platform (DCBP), a next generation banking product which is designed to help financial institutions tackle digital challenges, including distributed development, financial product management and accounting liquidation. This new solution, built on the bPaas (Business Platform as a Service) product, enables financial institutions to benefit from Ant Financial’s capabilities in product management, asset management or capital verification. Ant Financial has provided more than 100 technology products and solutions, and has helped the digital transformations of over 200 financial institutions (100 banks, 60 insurers and 40 wealth management companies and security brokerages).
BlackRock is partnering with Microsoft to develop a next-generation retirement-planning platform. It will help people develop better saving and investing habits, and how to spend assets in retirement. As part of this agreement, BlackRock will offer new investment products for all retirement income needs and will be available through workplace savings plans. Microsoft will bring its cloud and Artificial Intelligence technology.
Author: Pascal Buisson - May 2019
[1] Source: Shanghai Securities News ; [2] Paytm is an e-commerce payment system and digital wallet company funded by Alibaba and SoftBank in India ; [3] Source: Ignites Asia
