Following the 50 billion private equity fund from insurance capital, AMC and sec

Following the establishment of a 50 billion yuan private equity securities investment fund by insurance funds, AMCs (Asset Management Companies) and securities firms are also expected to bring an additional 60 billion yuan in incremental capital to the market by setting up asset management plans.

On February 28, China CITIC Financial Assets (formerly China Huarong) announced that the company's resolution to entrust CITIC Construction Investment to establish a single asset management plan (hereinafter referred to as the "CITIC Construction Investment Asset Management Plan") for investment was unanimously approved at the second temporary shareholders' meeting in 2024. On the same day, China CITIC Financial Assets signed an asset management contract with CITIC Construction Investment and CITIC Bank for the establishment of a single asset management plan, which took effect immediately.

This is also the second single asset management plan established by China CITIC Financial Assets with securities firms in recent times. Previously, on January 26, the company's resolution to entrust CITIC Securities Asset Management Co., Ltd. (hereinafter referred to as "CITIC Securities Asset Management") to establish a single asset management plan (hereinafter referred to as the "CITIC Securities Asset Management Plan") for investment was approved by the shareholders' meeting. Public information shows that CITIC Securities Asset Management is wholly owned by CITIC Securities.

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Regarding the background of the establishment of the asset management plan, according to the statements in the notices of the temporary shareholders' meetings held by China CITIC Financial Assets on January 8 and February 6, the asset management plan is to fully leverage the synergistic advantages of CITIC Group, enhance the ability to control investment risks, strengthen the support of investment professional capabilities, and in accordance with market-oriented and legal principles, professional asset management teams were formed by CITIC Securities Asset Management and CITIC Construction Investment respectively. In accordance with the relevant regulations and requirements of the regulatory authorities, they invest in high-quality assets of listed companies in domestic and foreign markets (including but not limited to bonds, stocks, etc.).

The entrusted capital scale of the two asset management plans is not more than 40 billion yuan each (inclusive), with a total of not more than 60 billion yuan. China CITIC Financial Assets will contribute funds in batches and installments, with an investment period of 3 years, which can be ended early. China CITIC Financial Assets is the sole trustee and the only beneficiary.

As managers, CITIC Securities Asset Management and CITIC Construction Investment will carry out investments at the right time and place, conduct active management, and only charge a management fee of 0.1% per year, with no backend sharing. As the custodian, CITIC Bank will charge a custody fee of 0.01% per year.

In the view of many market participants, the above two asset management plans have a similar effect to the recently established private equity funds by insurance funds, both of which can bring considerable long-term incremental capital to the market.

At the end of last November, New China Life Insurance and China Life announced that they would jointly establish a private securities investment fund, with each contributing 25 billion yuan, and the duration of existence is 10 years. Their respective holding subsidiaries, New China Assets and China Life Assets, each contributed 5 million yuan to jointly initiate the establishment of the fund management company, Guofeng Xinghua Private Fund Management Co., Ltd. (provisional name, hereinafter referred to as "Guofeng Xinghua"), which serves as the private fund manager.

At that time, New China Life Insurance stated that the establishment of the private fund company aimed to further increase long-term investment assets that are in line with the company's investment strategy, optimize the asset-liability matching of insurance funds, and improve the efficiency of fund use. China Life, on the other hand, stated that the fund intends to invest in high-quality listed company stocks with good corporate governance and stable operations, and to conduct investment operations according to market-oriented principles, grasp the timing of building positions based on market conditions, and dynamically optimize strategies.

Currently, the aforementioned joint venture private equity fund, Honghu Private Securities Investment Fund, has been quickly implemented. After New China Life Insurance held a temporary shareholders' meeting on February 27 to review and pass the "Proposal on Applying for Investment Pilot Fund," Honghu Zhiyuan (Shanghai) Private Equity Investment Fund Co., Ltd. officially announced its establishment the next day. The manager, Guofeng Xinghua, was established at the end of 2023 and completed registration in January of this year.According to Tianyancha data, Honghu Private Equity Securities Investment Fund engages in equity investment, investment management, asset management, and other activities as a private fund. It must complete registration and record-filing with the China Securities Investment Fund Association before it can carry out business activities.

Unlike previously established private equity funds by insurance companies, Honghu Fund is the first private securities fund directly invested in by an insurance company in China. Several industry insiders have previously expressed to First Financial that, compared to direct investment by insurance institutions, the method of establishing a private securities fund through joint ventures can alleviate concerns to some extent about increasing the proportion of stock allocations by insurance funds. This includes the potential for significant fluctuations in the profit and loss statement due to equity market volatility, increased minimum capital occupation that weakens solvency, and restrictions on stock concentration, which has strong replicability.

The industry generally believes that the establishment of Honghu Fund at this time is intended to respond to the regulatory call for long-term capital to enter the market, sending a positive signal to the market with strong replicability. Regarding the establishment of two asset management plans by CITIC Financial Assets, a securities analyst specializing in non-bank financial institutions told a reporter that AMC has funds, and securities firms have professional investment capabilities. This time, the model of long-term capital entering the market through asset management plans is of a higher standard.

The predecessor of CITIC Financial Assets was China Huarong, which just completed the listing and renaming on January 26th of this year. China Huarong was established on November 1, 1999, as one of the four major state-owned financial asset management companies established to cope with the Asian financial crisis, resolve financial risks, and promote the reform of state-owned banks and the recovery of state-owned enterprises. The main business includes non-performing asset operations, financial services, and asset management and investment business, among which non-performing asset operations are the core business of the company, covering four major business functions: "problem asset disposal, problem project revitalization, problem enterprise restructuring, and crisis institution rescue." On September 28, 2012, China Huarong was restructured into a joint-stock company, and was listed on the main board of the Hong Kong Stock Exchange on October 30, 2015.

After completing the shareholding reform and forming their own business models, the major AMCs have gradually deviated from the main business of non-performing assets while continuously expanding the layout of the plate, accumulating a lot of risks. In recent years, the industry has accelerated rectification under the regulatory requirements of "returning to the main business." With the entry of CITIC Group, the operation of China Huarong has gradually returned to the right track.

In 2021, China Huarong introduced strategic investment and increased capital by 42 billion yuan, and the major shareholder changed from the Ministry of Finance to CITIC Group (the relevant equity interest changes were officially completed in March 2023), and the management underwent a "major blood transfusion." During this period, by transferring financial license subsidiaries, the organization accelerated the thinning process. As of the middle of last year, the company's total assets were 934.968 billion yuan.

In terms of profitability, according to the profit forecast disclosed by the company on January 22, China Huarong is expected to achieve a net profit attributable to the parent company of 1 billion to 2 billion yuan in 2023, successfully turning losses into profits. After a loss of tens of billions of yuan in 2020 and a difficult profit in 2021, China Huarong fell into a loss again in the first half of 2022. Looking at the income composition, the company's asset management and investment business mainly include international business and other businesses. The income in the first half of last year turned from negative to positive, reaching 1.18 billion yuan, with a pre-tax loss of 9.053 billion yuan.

Compared with CITIC Financial Assets, which has the support of the new shareholder CITIC Group, it remains to be seen whether the other national AMCs can replicate this model in the short term. According to previous understanding of First Financial, after CITIC Financial Assets was incorporated into CITIC Group and recently completed the renaming, the news that China Cinda, Oriental Assets, and Great Wall Assets will be incorporated into CIC has also been further confirmed, but the specific plan may still take time (see the report "After Huarong changed its master to CITIC Group, Cinda, Oriental, and Great Wall will be incorporated into CIC, and the plan may be finalized within the year").

Entering 2024, the A-share market has ushered in a wave of shock rebound, boosted by the "national team" taking action in succession and regulatory authorities releasing positive signals through multi-dimensional measures such as easing leverage for funds, cracking down on fraud, and malicious short-selling. Especially at the beginning of the Dragon Year, with the new chairman of the China Securities Regulatory Commission (CSRC) Wu Qing "sitting in," the CSRC has held several symposiums in a row, "seeking advice" from all parties in the market, responding to market concerns in a timely manner, and continuously conveying positive signals to the market.

With low valuations and optimistic expectations for the good performance of China's economy and corporate profits, most institutions in the market have a long-term optimistic attitude towards A-shares. On the first day of March, A-shares ushered in a good start, with transaction volumes exceeding 1 trillion yuan for four consecutive trading days. Looking back at this week, the Shanghai Composite Index rose by 0.74%, the Shenzhen Component Index rose by 4.03%, and the ChiNext Index rose by 3.74%.