Xueyuan Han, chairman of Hanfor Holdings, shares how the company started its core businesses, the products and services it offers, and the role that financial technology plays in transforming the organisation.November 06, 2017 | Emmanuel Daniel
- Xueyuan Han shared that asset management is the most profitable of their business groups, followed by wealth management and credit
- He believes the company is moving towards financial technology in the future to cut cost and streamline processes
- Han plans to grow his business and scale steadily through improved customers’ trust and a “unique management mechanism”
Emmanuel Daniel (ED): Can you give us a sense of how you started your organisation and what is the focus of your organisation today?
Xueyuan Han (XH): I’ll briefly introduce Hanfor Holdings. Our business consists of five parts. The first is asset management, which is my majority. I did investment banking for years, and all of my skills and professions can be translated into the wealth management business. The second is credit loan, both online and offline. The third is third-party wealth management, also conducted both online and offline, which depends on the amount invested. The fourth is the family office in the brand named InCrease (赢石). The fifth is credit rating.
ED: This looks like business developed out of opportunity because your core skill seems to be credit, but you seem to have moved into wealth management.
XH: There is some misunderstanding in terms of our core skill. We started with asset management ten years ago. When you do asset management you directly face the asset-end, thus we have strong ability in terms of getting high-quality assets and risk management. But as the business size grew, fund became the biggest problem. If you want to get the size of asset to billions large, your source of fund becomes a major challenge. It’s the same over the world. If you want to expand asset management business, you have to solve the fund-end challenges. In leading asset management companies, asset management, private banking, and retail go in a set. This is one of the reasons why we started the wealth management business.
ED: So for credit loan and credit rating, these are credit business. So you have two businesses? One is investment, the other is credit?
XH: Asset management and wealth management are together, while credit is another. Credit business is because we have a credit rating company similar to Standard & Poor’s, which is one of our major shareholders. A credit rating company helps to build up the assessment system for companies and individuals. At the first, we did consulting for other companies. Then we build up the ability of assessment and risk management, we were able to conduct credit business.
Asset management as the most profitable business group
ED: So how did you get into that business given that your core skill is in investment? Did you buy into it or is it a partner that brought the business in? And it’s a very data-driven business and today you have the problems of equity funds in the US does this concern you at all?
XH: We gained the credit rating company by M&A. It was the longest established domestic credit rating company with a 30-year history. Six years ago we invested in that company as a shareholder.
ED: So what was your thinking at that time when you bought into the credit company? Did you see credit as a very profitable business? Did you see data a very profitable business? Which aspect of credit were you attracted to?
XH: Data, the scarcity of licenses for credit rating as there are only six such licenses in China, and the team of the company as the team is very competent in terms of risk management. All of the three factors are important.
ED: Which of your five businesses are moving fastest at the moment? And when I see the brand of your company? What do you think the people associate the brand with? Is it credit, or is it investment, or is it wealth management? Which business is giving you the most profit at the moment and moving the fastest?
XH: The three business groups: wealth management, asset management, and credit, are equally important to us. But at the moment asset management is the most profitable. Wealth management goes the second. Credit or the fintech business is the third. But, I think in the future, the credit or the fintech business will become more and more profitable, in the end credit and asset management will become the two most profitable business lines.
ED: The technology business that you run for instalment loans; is the intention to provide that as a third-party service or is the intention to run it as your own company? Is it a platform business or is it your own business?
XH: It is our own business. We have the licence for online credit loans which is the same as banks’ credit licences. We select assets on our own, and conduct credit loan business with institutional funds.
Emmanuel Daniel, chairman of The Asian Banker, and Xueyuan Han, chairman of Hanfor Holdings
Moving towards financial technology
ED: Where are you taking this organisation from today to the next three years or so? What are some of the goals that you want to achieve?
XH: The company is moving towards a financial technology (fintech) company. We want all of our investment, transactions, credit business to be managed all through the system. Our is not only conducting credit business, but also providing IT support to asset management and credit management. So in the future, our credit business, asset business and wealth business will all be intellectualised. Let’s look at the rankings of our company. We currently rank top five in the non-banking wealth management area, top 20 in asset management area, and although we haven’t entered the fintech industry for long, but we rank in the top 30 in that area. We grow quite fast. In three to five years, we may enter the top three in those business areas from the perspective of asset size and technology skill.
ED: We’ve been meeting different peer-to-peer lending companies, and we noticed that each of them have different approach but all of the companies are growing their lending dramatically. Most of them follow a supply chain, for example, Credit China follows the supply chain for orange juice business. So they lend to small businesses in the orange juice business. But you seem to be taking the approach of data. Does that mean that you are able to expand more broadly in terms of your credit business?
XH: In fact, I think the data business in China is more advanced than that in other countries. The ability to share data is stronger. There are currently about a dozen Chinese companies which have data of more than a billion users. We don’t have to accumulate the data because the time circle of that is too long. We share the data and use the data on the design of products, customer acquisition, and risk control, etc. Two years ago, data was a major obstacle, but it isn’t anymore. We now can use the data of Alibaba and JD.
ED: What is your specification, what kind of data are you collecting? Is it geography specific, is it social media big data, or is it supply chain specific?
XH: Currently, we focus on people. There are six data dimensions regarding people. There are more than 100 data dimensions in our own assessment model collecting data, from people’s behaviour, consumption, and credit. The data is complete, we have multi-dimensional data source, we use different data for different group of people, and for different data source we distribute different weights.
ED: So, for your credit business, I don’t have data of how many customers that you have and how many assets in your portfolio.
XH: 20 billion.
ED: When it comes to investment, third party wealth management, and family office, do you represent your own products or do you sell third party products?
XH: Half and half.
Establishing successful products in China
ED: What kind of product seems to be successful today? Are you concerned that in China right now prices of the assets are growing too quickly?
XH: This is a bit too big to talk about. We have standard products and non-standard ones. Non-standard products are accumulation funds, monetary funds, and bonds, which are more moderate and have lower profit margin. Non-standard products include different types of fund, like contractual fund, real estate fund, and etc. we make different asset allocation according to the investor’s risk preference. There are bubbles in some assets, but we are trying to find the assets whose price is in accordance with their value.
ED: So when we do assessment for wealth management business for our awards, the first is the product sets, the second is your sales capability and how you incentivise your sales, because a responsible wealth management business will be very aggressive in the incentive to the sales team, the third is the commitment to the customer whether long-term or short-term, the fourth is the technology in services you provide to the customers.
XH: I think products and service are the most important part. Because the sales people come and go, it’s not that important in terms of competitiveness. Because in China, it’s hard to get assets with good quality, you’ve got to have good asset management team and risk control team, and the ideal environment for competition, otherwise you can’t get the good assets to allocate.
ED: We look for products. We also look at your agreement with the original product manufacturer. Some wealth management players have agreement to sell a lot of products of one provider.
XH: We have standards for third party assets providers, and only those who reached standards can provide assets for us. Following the entrance standards, there are assessment mechanisms including due diligence and risk control, and those assessments are gradually conducted by the system. Only if the assets passed the assessment will we continue the centralised purchasing. Now, we only purchase the assets from domestic and international famous companies.
ED: Your customer base is full ranged, is the individual customer and high net-worth customer, the mass customer and private banking customer, this is a very broad customer base.
XH: We have three brands covering three specified markets. InCrease does family trust; Nuoyuan does private banking, and Nuoyuan Online covers the online market with the investment amount below one million.
ED: In this way, you are very similar to a number of players.
XH: In fact, I don’t think so. Many players, like CreditEase and Noah, use one to cover all customer bases, but we have three brands with different teams, business processes, and services.
ED: Where is the biggest cost of your business at the moment?
XH: The human resource cost.
ED: But I'm trying to get a picture of how you are incorporating the total brand, because you do have a credit products in your brands, how do you justify or rationalise it, how do you explain why you have credit and investment together in the same brand?
XH: It's not in the same brand.
ED: But sometimes the organisation might see this way, but the customers may not see this way.
XH: The backstage, the service centre, the product centre, and risk control centre are shared, only the sales team are different.
ED: What is your view your customer experience of your wealth management business, what do you think your customers see?
XH: Our brands won’t conflict each other in the same city or region, as they each have very clear targeted customer bases. Different customer groups only recognise one brand. The customers see us as a professional financial company whose business includes asset management, wealth management, and internet finance, and a company which is professional in risk control an asset acquisition.
ED: What is the size of asset under management? And how many customer base under each of the three different brands?
XH: In 2017, for wealth management, the asset under management is about 80 billion, for asset management, assets under management (AUM) is about 50 billion. We have about 20,000 customers, and this number doesn’t include that of online customers which is too small.
ED: 80 billion, is it all invested in China or are they also invested overseas?
XH: Overseas investments account for about 5%, mainly due to the foreign exchange control.
ED: For 20,000 customers and 80 billion, sounds like some of your customers are institutional.
XH: About 20% are institutional.
ED: Were you in a bank before? Or what is your own background to have this type of customer base?
XH: I did asset management and investment banking for about 21 years, and also spent five years doing financial auditing, so I’m familiar with finance, investment, and law.
ED: In terms of your 20,000 and 80 billion, your cost income ratio must be quite good. In terms of competition, what is your biggest concern that you have, is it the fees you generate, or is it the cost of the business?
XH: My biggest concern is the cost for the team to integrate, as we have very strict control over the financial cost, and also it should be the chief financial officer (CFO) to watch out the fees and cost, not me. What I’m concerned is how to make the team work more closely and communicate more effectively to deduce the internal communication cost. And I take profit more seriously than the scale. We have strict cost control and focus on the company’s profitability instead of growing the scale.
ED: I want to get some comments from you about the wealth management business in China, and how it will grow deeper in the next three years. And what is the prospect for the difference between the equity and debt product? Because governments are going to be issuing debt soon, so do you think there's an opportunity there?
XH: As the assets bubble in debt grows higher, the amount of debt products which can be invested in will decrease. I think the equity funds’ profitability and the capability to hedge risks are much stronger, because the portfolio of equity products includes all kinds of projects. So compared to debt products, equity products have better profitability and prospects. Right now the debt products have very large asset bubble, and the price is not in accordance with the value, so I think it’s quite risky to invest in debts. It appears to be secure, but it’s risky.
ED: But don't you think as the investment market in China becomes more mature, investors will be looking for consistent income products?
XH: Fixed-income products are illusion, because it has very large asset bubble. In fact, I think we should learn from the overseas market. Successful companies like UBS and Morgan Stanley, most of their products are exchange-traded funds (ETFs). ETFs invest in all kinds of assets including fixed-income assets and floating-income assets, thus it can hedge the risks. The reason I think equity product has better prospect is it can hedge the risks within the same product.
ED: Do you like the idea of umbrella fund?
XH: Well, it’s a good product, but the problem is whether we have the ability and the team for its active management.
ED: Ok, but actually it's an opportunity for more income for your company, is it a popular type of product for you?
XH: We didn’t allocate any assets on that.
ED: What makes you happy about your customer? When does your customer make you happy?
XH: At our road shows, I meet the customers and communicate with them. The trust from the customer makes me happy.
ED: Is there a certain type of customer that you find you are successful with? Is it professionals? Is it wealthy families? Is it people from certain provinces that you are successful with?
XH: Our backstage data shows we have more customers aged from 40 to 50 years old than other groups.
ED: Our difficulty is trying to find which wealth management player in China is more responsible and therefore has the ability to be sustainable for long time. And the other thing is we have a very hard time trying to find the difference between the different players, because it's not difficult for many players to be successful in China at the moment.
XH: For me, risk control and profitability are both important. There are too many wealth management companies in China, being responsible to customers - means being more profitable and more sustainable than other players. That’s why I focus on the profit, because if the company makes money, thus it exists, the customers can stay longer with us.
ED: You've been making a lot of comments on fintech, and you wanted to make a distinction between your idea of fintech, why is this so strong with you?
XH: The reason is obvious: fintech can cut the cost. Compared to last year, the number of our staff decreased a quarter, but the business performance almost doubled.
Scaling quickly through human resources
ED: Is there a temptation to introduce an investment banking business into your business model, because your background is investment banking.
XH: We rarely do investment banking now, but we have many partners in this field. Because I think in the investment banking industry, people earn service fee by paying a lot of energy and effort. Now we are doing business with higher earnings. Bringing in people with investment banking background is because they know the industry and investment very much.
ED: Yes, and when you add investment banking to your business, you take on very high risk. Do you think that your distribution capability will expand beyond yourself, from what you have told me, it seems that you are the most important person in your business? And distribution is dependent on your ability personally to reach out to the customer. Do you think your business can expand beyond that?
XH: In the start-up stage, my influence on the company was very important, but the mechanism becomes more and more important as the company grows bigger.
ED: Thank you for this information, we will have to go through a process of understanding your business better, as I said, the difficulty we had is there are several players that look the same in China. the ones that grow quickly, we can tell why they grow quickly, but the ones that grow steadily, we need to know what is the brand, the trust of the customer, and the ability to scale, these are what we are looking for.
XH: We’ve been the first in the industry in terms of ability to scale in the recent five years, about the fifth in terms of the brand, because we only started the business for three to four years. In fact, the ability to scale stands for trust from customers, otherwise you can’t grow so fast. We distinguish us by our unique management mechanism, because we think the ability to manage the team is the most important, instead of products, scale, and risk control. We spend 70% on the human resource, because most of the services are delivered by humans. It’s like Huawei. Their ability to manage people makes them successful. And also, our HR head previously worked at EY and led the team designing Huawei their human resource and staff motivation mechanism. So our company is flatly organised, active and creative, and at the same time, we are good at the control of risk and cost, which requires the good ability to manage people. Without that ability, you can’t outrun your peers, which is why I spent 60% of my energy on human resource.
ED: When you said 80 billion, does that include the platform customers? How many customers are you onboarding on your technology platform?
XH: Eighty billion doesn't include the online customers. For online, the number is about eight-nine billion, and the number of customers is above 100,000.
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