Decline in returns leading to insufficient fundraising, frequent failures in issuing bank wealth management products

Ask AI · Does the failure to issue wealth management products signal an industry shift?

Interface News reporter | Feng Lijun

Recently, several bank wealth management subsidiaries have issued announcements stating that their newly issued wealth management products could not be established because the total amount raised did not meet the minimum issuance size specified in the product prospectus.

Interface News reporter reviewed and found that among the wealth management products whose issuance failed, the vast majority are fixed-income products, with risk levels mostly at R2 (medium-low risk) or even R1 (low risk). Among them, a wealth management product from Huaxia Wealth Management failed to be issued because the fund-raising scale did not reach the minimum threshold of 5 million yuan.

Industry analysis believes that the recent failure to issue some wealth management products is mainly due to a decline in product yields. Since late February, major asset classes such as stocks, bonds, and cash equivalents have undergone adjustments to varying degrees. On the other hand, from the supply side, the wealth management products are highly homogeneous; on the demand side, liquidity preference has increased, leaving products slightly less attractive.

Multiple wealth management products failed to raise funds to the minimum threshold

Taking Huaxia Wealth Management as an example, since the beginning of this year, Huaxia Wealth Management has released 15 announcements stating that newly issued wealth management products would not be established, all of which are fixed-income wealth management products; since March alone, it has issued 7 such announcements.

Judging from these 15 announcements released by Huaxia Wealth Management this year, the reason for the non-establishment of 14 products is that the total fund-raising amount did not reach the minimum issuance size stipulated in the product offering documents. In addition, the fixed-income pure bond shortest-holding 90-day wealth management product W (product code: 25115113) failed because the fund-raising scale did not meet the pre-set requirements for the investment assets; to protect investors’ interests, the product would not be established.

In terms of the minimum issuance size, the highest is 50 million yuan, for a total of 6 products; there are 7 products with a minimum of 10 million yuan. The lowest is Huaxia Wealth Management’s fixed-income debt closed-end wealth management product No. 1381, with a minimum issuance size of only 5 million yuan. From the perspective of product risk ratings, all of them are medium-low risk or low-risk products.

Source: Huaxia Wealth Management announcements; compiled and charted by Interface News reporter

On January 16, Guangyin Wealth Management announced that its Guangyin Wealth Management Happy Add Profit closed-end fixed-income open public wealth management product No. 3059 would not be established because the product’s fund-raising scale failed to meet the minimum establishment size requirement specified in the product offering documents.

In addition, other bank wealth management subsidiaries such as CMB Wealth Management have also recently released related announcements that their products would not be established because the fund-raising scale did not reach the minimum threshold. According to media reports, since the start of the year, about 40 wealth management products have failed to be issued.

“ This indicates that the wealth management market is shifting from scale expansion to a game among existing holdings. Investors are becoming more rational, and the product supply side is also moving away from extensive issuance. From the supply-and-demand perspective, failure to raise funds will not become universally the norm, but it will become an industry norm. At the same time, institutions’ ill-timed product designs and issuance pacing are more likely to result in not meeting the offering requirements.” Wang Pengbo, Chief Analyst for the financial industry at Botoon Consulting, told Interface News.

“ With reduced backing from the parent bank and an expansion of distribution channels, only products with historically strong performance and high customer fit will have a chance to receive resource tilting.” Su Xiaorui, a senior research analyst at Sushi Ziyan, also believes that the phenomenon of failed wealth management product issuance may become commonplace in the future.

Investigating the causes

Industry analysis believes that the main reason some wealth management products have recently failed to be issued is that their product yields have declined.

“ As far as I know, in most cases where wealth management products fail to be issued, it is because the fund-raising scale is insufficient and does not reach the minimum threshold.” An insider from a wealth management subsidiary of a certain joint-stock bank told Interface News. “ Over this recent period, wealth management product yields have not been very satisfactory—the ‘three slaughters’ in stocks, bonds, and gold. In past periods when wealth management yields were falling, there would also be similar situations.”

When asked about the impact on channels, the above-mentioned insider told Interface News, “ There won’t be many major changes in the distribution channels in the short term. The appearance may be that the channel is not doing well, but the underlying attribution is that ordinary investors lack confidence in investment performance.”

Affected by factors such as geopolitical conflicts, since late February, volatility in global capital markets has increased significantly, and major asset classes—including equities, bonds, and gold—have all shown adjustments to varying degrees. On social platforms, discussions from investors about recent declines in wealth management net asset values, falling yields, and even losses have been coming one after another. Dozens of wealth management subsidiaries, such as ICBC Wealth Management and Bank of Communications Wealth Management, have issued a “ letter to investors,” to reassure investors and stabilize sentiment.

ICBC Wealth Management stated that since the end of February, the complexity of the situation and the sustained high level of international oil prices continue to place enormous pressure on global market sentiment, exacerbating volatility across major asset classes. In the short term, risk appetite may continue to face pressure, and volatility may persist, but the logic that the market will perform well in the long run has not changed.

Huiyin Wealth Management stated that the bond market is more affected by sentiment contagion from falling equity markets, resulting in passive pressure. This does not mean that the fundamental logic of the bond market has undergone a structural, trend-changing shift. Whether the market can stabilize later depends mainly on whether the situation in the Middle East and oil prices can ease, and whether domestic funds’ negative feedback chain can be gradually brought to an end.

Wang Pengbo believes that the ongoing decline in market interest rates, and the narrowing of yield advantages for closed-end fixed-income products, is one of the reasons why some wealth management products have run into weak demand in fundraising recently. “ On the other hand, the products have become clearly homogeneous. Coupled with investors placing more emphasis on liquidity, their acceptance of lock-up periods declines. At the same time, insufficient channel promotion and inadequate customer fit jointly lead to such products struggling to raise funds.”

“ Products that fail to be issued because the fund-raising scale does not meet the minimum establishment threshold share certain commonalities, including being fixed-income, with mid-to-low risk, and being closed-end net-asset-value-based. Their fundraising failures result from the combined effect of multiple factors across the supply side, demand side, channel side, and external environment. From the supply side, the products are highly homogeneous; from the demand side, liquidity preference is rising, but the performance benchmark of these products lacks sufficient appeal to the market.” Su Xiaorui analyzed.

Wang Pengbo said that wealth management subsidiaries should first optimize product structures, increase open-ended and liquidity-friendly designs, and at the same time improve investment and research capabilities to create distinct return characteristics that align with customer needs for more targeted issuance. Additionally, in his view, they should also control the issuance pace, strengthen coordination with channels and support for investors, rebuild trust with solid performance, and promote steady development in the market.