Although Chinas capital market has made considerable development and obvious progress, there are also a series of problems to a large extent, such as the Ponzi of the primary market, the retail of the secondary market, and the manipulation of accounting valuation.
Today, at the 7th annual meeting of China wealth management forum 2019, Lou Jiwei, former Minister of the Ministry of finance, made the above statement and specific explanation in his speech.
First, there are a lot of Ponzi financing and investment in the primary market. He said that in the mature private equity market, a general partner (GP) only manages one fund by stages in the same industry (information technology, biomedicine, etc.) or at the same stage (angel, venture capital or M & A, etc.) according to its own advantages and expertise. While in China, a GP manages multiple private equity funds of the same type, which is likely to reverse projects among various funds, manipulate performance, and continue to develop new funds to undertake projects of poor quality among old funds, so as to support Ponzi financing with Ponzi investment. Due to various reasons, the relationship between general partner (GP) and limited partner (LP) is abnormal and lacks trust. For example, LP requires a large proportion of the fund share and the veto power of the investment project, or GP becomes the project source team seeking investment opportunities. The board of directors checks at all levels, and does not invest in similar private equity funds. The funds invested are all the head funds in the market. However, through extensive contact with market institutions, it is found that many institutions in the market tend to have the above problems.
With its unique market position, the NSSF Council has always emphasized the continuous standardization of the professionalism and focus of the GP team. Considering the particularity of domestic market environment and stage, compared with mature market, the board of directors appropriately relaxed relevant requirements, and allowed GP to manage single fund of different styles, industries and stages under the condition of full isolation and only sharing the legal, it and financial background, but strictly restricted the cross nature of various types of funds. Lou Jiwei said.
Secondly, the second market institutional investors retail problem. Lou Jiwei said that in mature markets, institutional investors are the main investors, most of them entrust institutions, and few of them are retail investors. Institutional investors mainly obtain income through allocation, with attribution accounting for more than 80%. In portfolio management, fund managers beat the market in the way of index enhancement. By reducing the weight of low-quality stocks in benchmark stocks, they improve the weight of high-quality stocks, and follow the benchmark changes in discipline when adjusting the components. The overall turnover rate of mature market is low, price discovery is better, and speculation is less. Because the market is effective, the level of excess return that fund managers can contribute is also low, at the level of several basis points (BPS). The domestic market is still in the development stage, and there are certain opportunities for timing and stock selection. However, the holding rate of equity fund accounts is too low, generally around 60%, which is far away from the specified benchmark beta, and also deviates from the allocation requirements. In addition, the trading turnover rate of the account is high, and the fund manager believes too much in the ability of timing and stock selection to contribute income. As the largest institutional investor in the market, the Social Security Fund Council operates on its own for pure beta allocation of duplicate stock index investment, and entrusts external fund operation for index enhanced investment. In response to the above situation, the NSSF Council has improved the investment guidelines, strictly requiring positions to be no less than 80%, coverage of the benchmark to be no less than 50%, and clearly defined the scope of timing and stock selection. From the performance point of view, the effect is good. The annual excess return is more than 600 basis points, which not only obtains the performance, but also promotes the maturity of the market.
Third, investors make full use of accounting standards to classify and value financial assets in their own way. According to accounting standards, financial assets can be divided into transaction type, available for sale type and held to maturity type, and can be priced according to fair value or amortized cost, and large amount of shares can also be accounted by cost method or equity method. The boundary of the applicability of accounting standards is not clear enough, and the range of discretion is large. All kinds of capital pools are the confusion of underlying assets, nesting layer by layer, increasing leverage, and using unclear applicable boundaries of the standards to conduct accounting in a more favorable way, manipulate earnings and cover up risks.
In this case, I also specifically asked the accounting department of the Ministry of Finance and learned that our accounting standards are formulated by reference to international accounting standards, and all of the above situations are in line with the accounting standards. However, in the field of investment, mark to market system should be adopted to measure at fair value. Only in this way can we objectively and discipline reflect the real situation of investment, effectively monitor investment risks and prevent the emergence of Ponzi scheme. Lou Jiwei said that the change of accounting methods can not be carried out step by step, to prevent the overall collapse of the bubble caused by the deleveraging process, and to trigger systemic risks. Therefore, it is necessary to set up a transitional period for the new regulation of financial management, and give financial institutions more adequate rectification and transformation time, breaking the rigid exchange, prohibiting capital pools, restraining channels, and strictly controlling risks. At the end of the transition period, all investments should be accounted for in accordance with international standards and global investment performance standards, i.e. Gips.
Fourth, the risk of bank deposit appears. The Council of social security fund is an institution. The deposit bank shall be selected according to the government procurement law, i.e. with the participation of external experts, and the high quality, good price shall be taken as the standard. However, low quality and good price for industry, agriculture, construction, and transportation, high quotation and high risk for medium-sized banks, and how much risk consideration to pay is in line with high quality and good price become the key point. However, Chinas supervision lags behind and the disclosure of risk information is not sufficient. The Council has to seize the public information and make a list of prohibited banks. For banks suspected of high risk, they can only rely on the way of increasing the pledge of national debt to prevent risks to a certain extent. Lou Jiwei said.
The above phenomena arise from the combination of various problems such as bad market style, improper rules, inadequate supervision and low risk awareness of the whole society. We have seen that the new regulations on asset management have been revised and issued in several rounds. The banking and financial management departments must be subsidiaries to properly isolate risks. Although the fund industry association has been slow, it still discloses the number of funds under GP management, etc. Lou Jiwei said. In view of the above situation, we should strengthen the opening up and attract more mature overseas investors to enter the domestic market. On the one hand, we can attract some funds to enter the domestic market. On the other hand, we can help guide the investment concept and style of the primary and secondary markets to integrate with the international market, improve the risk awareness of domestic investors, and promote the market to gradually mature and healthy long-term development of the industry. At the same time, Gips is used to calculate the investment performance, which makes the investment performance more fair and the risk measurement more accurate. It should be pointed out that Gips has its shortcomings, for example, the net present value can not accurately reflect the value of intellectual property, etc., which can be gradually improved. Through the combination of supervision, institutions and market opening, we will change the investment culture of capital market, improve the price discovery function of capital market, guide capital to gather to enterprises with higher efficiency and better prospects, improve the proportion of direct financing of enterprises, reduce the debt ratio of enterprises, and realize the optimal allocation of resources.
Source: new Beijing News Author: Hou Runfang, editor in charge: Shi Jianlei, nbj11331