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[Media Focus] Indispensable Trust Obligation | Column Story by BAO Yue, President of GGTT

Date: 2016-07-01
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Ponzi scheme and abscondence with money should be the most eye-catching events recently spreading on the online financial platforms. According to some industry-approved data, there were about 660 platforms nationwide that absconded with money in 2015, and this January and February, another 200 platforms followed. This is a response to a joking word in the financial community, “You want interests, and your principal is wanted.” In a series of such accidents, apart from insufficient supervision and some investors’ lack of vision, the underlying reason may be that the assets managers have left behind the “beginner’s mind” – trust obligation, the most prime element in this industry.
If you’re managing your own assets, there is no such trust obligation. But if you become the manager of others’ assets as (or not as) a company, you’re certainly about to take the trust obligation. “Because we trust you, we entrust our money to you.” Customers entrust their hard-earned money to you because they trust you, so you should fulfill your duty of taking care of the money according to the customers’ requirement, just like the Chinese old saying “Your entrustment, our commitment”. Behind the trust obligation is the spirit of contract, which is also the root of healthy development of western commercial culture. An example could be cited from the US capital market, where the professional manager could stick to their jobs owing to the existence of such spirit of contract throughout the society. Although many CEOs don’t hold the stock right, they still can try their best to maximize the company’s profit. Among them is Jack Welch, known as Global First CEO, who, since joining the General Electric, successfully increased the company’s market value from USD 13 billion (when he took office) to USD 480 billion during two decades, and its ranking from world tenth to world first. While when he retired, he just took away with him USD 100 or 200 million.
Trust obligation, compared with western countries, is missing in Chinese capital market, especially in assets management. The trust obligation assumed by assets management agencies is to create more rewards for customers, but the “more financing, less investment” situation remains largely the same in Chinese capital market, and there is not enough importance attached to the “exit” among the four steps involved in fund, namely collection, investment, management and exit. In addition, many people are investing their money with speculative minds. They lack persistency for long-term operation, short-sighted and anxious to achieve quick success, which results in a too fickle market. It’s undeniable that the defect in Chinese capital market in the past decade was responsible for speculation arbitrage by some institutions, but such profit-earning pattern is not sustainable. Both the capital contributor and manager should have clear knowledge about investment: returns are equivalent compensation for risk and liquidity. The larger part of the reason why so many financial platforms are under the cashing crisis is that the manager lacks the trust obligation, only promising high profit to the investor and not mentioning the risk and liquidity behind such profit.
We believe that the future years are not only a key period for China’s economic transition, but also likely to be the shuffling period for assets management industry. With the increasingly strict supervision, institutions failing to stick to their trust obligations may find it hard to gain favors and supports from contributors, as fund products are becoming due or being liquidated. While those outstanding institutions that still adhere to their “beginner’s minds” after all these market changes are expected to enter a high-speed growth period. Regardless of how characterized or how specialized an assets management agency may be, it will have to put a strict control over its internal management and keep its trust obligation in mind at any time before earning permanent loyalty from customers.
In the realistic economic society, each type of entity has its own trust obligation, a responsibility more important than money. For contributors, it’s an unavoidable fact that investment involves risks, but the key issue is whether the manager has fulfilled his/her obligation; the same principle is also applied to the manager. They establish industrial reputation and a long-term career by faithfully carrying out their trust obligations to the contributor and thus become the reliable “babysitter” to whom the contributor can entrust all their assets. In western countries, there is a financing method called carte blanche assets management: some high net-worth customers entrust the value-increasing management of all their assets to a trustable third-party professional agency. This reflects, to a certain degree, the value brought by adherence to trust obligation. It will be much better that if China could have such a group of carte blanche management agencies, who can win full trust and loyalty from investors with their long-term adherence to the trust obligation. This will play a guiding role in leading Chinese capital market.

(Source: 21st Century Business Review; contributing author: BAO Yue, president of Heaven-Sent Capital Management Group Co., Ltd)


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