China's trust companies have for the first time overtaken retail funds in terms of assets under management (AUM), finds KPMG's inaugural survey on the trust sector, titled China Mainland Trust Survey 2011.
Trusts experienced unprecedented growth rates in profits, while AUM for some companies doubled, and in other cases, tripled from 2009 to 2010. Retail fund management companies generated assets under management (AUM) totaling US$400 billion for 2010, whereas China's trust funds saw AUM totaling US$480 billion for the same time period.
"Trust companies are one of the key driving forces behind financial innovation in China," says Jason Bedford, Manager, Financial Services, KPMG China, and author of the report. "They have a unique role, as a driver of wealth management services as well as providing much needed debt, equity and hybrid financing in China."
Bedford notes that their unprecedented success in the last 12 months is because they are targeting an attractive and prosperous segment of the market - high net-worth individuals and institutional investors.
"They are also more effectively tapping into China's growing domestic personal wealth as the economy continues to boom," he adds.
Trust companies are unique among Chinese financial institutions and in particular their fund management capabilities allow them access to the widest range of asset classes of any other financial institution.
One of the more noticeable trends in the last 16 months has been the increasing diversity of their product offerings which now include arbitrage funds, sunshine funds (privately managed equity funds), infrastructure funds and real estate funds to name a few.
Simon Gleave, Regional Head, Financial Services, KPMG China, notes that trust companies play a valuable role in China's financial sector.
"The level of sophistication and risk management for trust products has seen a tremendous increase. This is being driven by increased professionalism in the sector and effective regulatory oversight," says Gleave.
Gleave adds that ongoing challenges however include ensuring high levels of risk management while also making sure that staff skill sets match the ever-changing needs of the business.
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