Asset managers target startup founders as wealth grows

When startup founders cash out with a large amount of money on hand, they start to become targets for the wealth management companies. What goes around comes around!

The exponential growth of venture capital funding did not only give rise to a large group of startups across many new industries, but also a group of young entrepreneurs that become rich within a short period of time. Naturally, they become the next target of private banks and asset management companies.

China Renaissance said it is going to launch its first wealth management product by the end of this year, targeting high net worth individuals from the so-called new economy sectors.

The Hong Kong-listed company expects to have more than half of these high net worth clients coming from new economy sectors such as information technology, biotechnology, cloud computing and advanced materials, among others. 

As such, China Renaissance is set to expand beyond its core investment banking and advisory business. As the firm is best known as a boutique investment bank serving new economy startups in China, it appears a natural extension of its business to serve the entrepreneurs behind these startups.

In fact, China Renaissance's buy-side operations are growing at a quicker pace than its sell-side business. The firm's financial statement shows that revenue from its investment management business grew about 67% year-on-year to $47.3 million in 2018, while its investment banking business grew only 43% during the same year. 

It is not hard to understand why more growth is coming from investment management. Fundraising events in China have a significant increase since 2017, jumping 85% year-on-year to a total of $568 billion. The fundraising amount continued to increase to $652 billion in 2018.

There were a lot of opportunities for early-stage investors to cash out because there has been a significant increase in the number of initial public offerings over the last two years, with major deals including Meituan-Dianping, Xiaomi and Pinduoduo

Mobike’s ex-chief executive Hu Weiwei was reported to cash out $200 million after the leading bike-sharing company was sold to Meituan-Dianping for $2.7 billion. Four co-founders of Xiaomi, namely Huang Jiangji, Li Wanqiang, Liu De and Hong Feng, cashed out about total $255 million when the Chinese handset maker completed its IPO in Hong Kong last year. 

There are more entrepreneurs like Hu and Huang in China, who turn to wealth management companies to preserve the money they earned. And these successful enterpreneurs often has a specific investment preference.

Five out of 10 rich Chinese families that became wealthy in the last decade were associated with internet-related sectors, according to Hurun Report. According to another research published by Noah Private Wealth Management, many of these high net-worth clients prefer equity investment. And more than half of these clients intend to increase their investment overseas.

This is the opportunity that China Renaissance said it is aiming for.

COO Wei Xiang of China Renaissance said wealth management for high net worth individuals will be the focus for the company in the next ten years. The firm already started cooperation with Liechtenstein-based LGT Bank to allow clients buying the financial product on both platforms.

Being the financial advisor for “new economy” companies in China over the years, China Renaissance said it already develop a steady relationship with these startup founders and understand their need for wealth management.

Overall demand for wealth management is increasing, and also from people in the new economy sector, Eason Zhuang, senior vice president from Noah Holdings told FinanceAsia.

Most of these clients have a preference for shorter investment cycle and a particular investment sector. For risk preference, individual investors have an interesting polarized choice, either with very high or very low risk, according to Zhuang.

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