As financial firms scale up, they typically suffer from a risk fragmentation of management information. Guotai Junan International has proven itself capable of extending roots into structured products, loans in the retail market and the fixed income, currency and commodity business, while supporting a solid trunk of a group.
“One of the benefits of having a broad range of business lines and products is the ability to serve clients with a holistic approach across asset classes and products,” says Yim Fung, chairman and chief executive of Guotai Junan International. “At Guotai, clients are traditionally served by dedicated relationship managers in order to maintain a direct relationship with the client. Their role is to get to know the client well, offer tailored services and advice on an ongoing basis and to offer solutions to meet specific needs.”
In 2017, the number of professional investor clients that the group has on its books more than doubled year-on-year, while their average account balance soared by 126% year-on-year. Total assets under custody increased 31% in that period. It participated in several large initial public offerings and 101 debt-issue exercises, more than double the number it handled in 2016. In 2017, the company carried on providing customised products for clients, including the provision of derivatives such as return swaps and leveraged notes, to cater for the various investment needs in the market. The firm’s equity derivatives department saw a rapid expansion year-on-year between 2017 and 2018, with a 162% increase in revenues from financial products. Customised products include rules-based indices, actively-managed indices and managed portfolio index-linked notes.
“Especially in challenging market environments, which we are certainly experiencing this year, we believe the focus on clients is of key importance,” says Fung. “We adhere to the client-centric approach, and we create value for our clients with professional services. What differentiates financial institutions is the ability to solve client needs with the right solution in a timely manner. We often notice that competitors are not able to offer the right solution within deadline.”
He adds that the firm’s central philosophy is that “risk management creates value and compliant operations steer the future” regardless of competitive pressure and external events, with innovation seen as the driving force behind the development of the company.
Guotai, like most of the finance industry, is also looking hard at how to respond to technological disruption within its business in face of mounting pressure from increasingly tech-savvy customers.
We adhere to the client-centric approach, and we create value for our clients with professional services. What differentiates financial institutions is the ability to solve client needs with the right solution in a timely manner. We often notice that competitors are not able to offer the right solution within deadline
Yim Fung, Guotai Junan International
“In our view, technology enables financial institutions to offer more value add in terms of services, costs and efficiency,” Fung says. “A central decision to make, however, is whether to outsource technology and leverage on existing capabilities of specialised external providers, or to develop and build the entire infrastructure internally. At Guotai Junan International, our departments dedicate a considerable amount of time to screening and evaluating services from external providers.”
While Guotai is continuing to invest in the internal development of its platform, the strategic goal is to strike a balance between engaging with external providers and integrating elements into the firm’s existing infrastructure. By striking this balance, the firm intends to develop state-of-the-art platforms and capabilities with a focus on controlling costs, which directly translates into benefits for clients.
The firm’s risk culture is the main challenge in building a risk-management framework or system, and Guotai has set out key tenets to embody its view on risk. Examples of these parameters include being aware of a limited capacity to take risk, prioritising the risks it takes based on acceptable risk-adjusted returns, only assuming risks where it has sufficient skills to control them and being guided by the intention to maintain an investment-grade credit rating over the long-term.
Cementing these into the firm’s operations has required it to build an in-house risk-management system, and a risk-adjusted return on capital has been set as a key performance indicator at business level.
“This is a major milestone in our company’s history to embed our risk culture into daily business decision and annual performance review processes, and will create a lasting impact on how we do business going forward,” Fung notes. “Incentives change risk-taking behaviour and efficient capital allocation.”