Opportunities arise precisely where challenges exist. What transformations are currently underway in the private asset management business market? Following the bond market's rally in 2024, the static coupon yield by the end of the year had fallen to approximately 2%. This significant decline in returns from fixed income products presents a considerable challenge for market participants accustomed to yields above 3%, simultaneously signaling the arrival of a low-interest-rate era for the fixed income market.
Amid the contradiction between investors' desire for higher yields and the market's inability to supply high-yielding fixed income products, the focus has gradually shifted towards exploring 'fixed income plus' strategies. This shift has spurred the creation of various 'fixed income plus' products. Mainstream offerings now include fixed income combined with convertible bonds, fixed income plus equities, major asset class strategies, and their accompanying quantitative investments and CTA portfolios. With advancements in AI, the maturation of large language models, and the application of AI agents, quantitative investing is gaining increasing market attention, thereby squeezing the space for traditional discretionary investing. These challenges confront not only the market but also institutions and investment managers.
Facing these challenges, a motto ingrained in every actuarial science graduate comes to mind: "Risk is opportunity." Challenges breed opportunities, and it is precisely under such circumstances that the private asset management business is encountering greater prospects for development. These opportunities are primarily manifested in three areas:
1. Private asset management boasts a wide investment scope and diverse strategies. As returns from pure fixed income products have significantly decreased, investment demand has spilled over into 'fixed income plus' products, which offer yields of 3%-5% with controllable volatility. Furthermore, to reduce portfolio volatility and diversify return sources, various commodities and derivatives are being increasingly incorporated into portfolios. This significantly enriches the product lines within private asset management, enabling them to meet a wide array of investment needs. 2. Customization of risk preferences satisfies various combinations of returns and drawdowns. Investors can select investment solutions based on their individual risk appetites, catering to diverse requirements. 3. Fund companies possess rich talent pools in equities and quantitative fields, providing substantial professional support for new strategies. These companies have greater staffing and accumulated experience in equity investment and research, along with robust reserves of quantitative talent, offering solid human capital support for various assets and the strategies built upon them.
How should one adapt to the challenges brought by technological progress? As an investment manager with over a decade of experience, I deeply feel the significant challenges AI applications pose to traditional investment and research. At the management level, we observe asset management companies rapidly advancing their use of AI and large language models in investing, particularly in gathering investment factors and employing quantitative methods to control portfolio volatility, aiming to achieve better Sharpe Ratios at the portfolio level.
At the investment manager level, we recognize that AI and large language models are not only significantly replacing manual labor in data collection and processing but are also making great strides in generating trading signals for asset price movements and improving win rates. Keeping pace with technological iterations has become crucial for investment managers. Those who completely lack understanding of AI and large models risk being replaced by AI within a few years, or even sooner. Investment managers should cultivate a sense of urgency and strive to become proficient users of AI rather than being displaced by it.
How should private asset management product managers adapt to the demands of major asset class allocation? As a manager originally specializing in credit bonds, I have spent over a decade meticulously seeking out returns: even after managing accounts for more than ten years, I maintain a high frequency of frontline research. Although demanding, I believe this is an indispensable element for successful investing. I firmly hold that practical experience outweighs theoretical knowledge alone. Many core judgments in investing rely on vast amounts of information: What is the state of high-frequency economic data? How is an industry truly developing? Is a company operating soundly? I believe such nuances cannot be fully grasped merely by reading news and secondary data in an office. Direct observation allows one to discern trends from minute details. Whenever my investments face difficulties requiring major decisions, insights into macroeconomic shifts, industry logic, and corporate fortunes gained during research help me better predict future industry developments. This foundational knowledge is highly beneficial for major asset class investing; my understanding of micro-level enterprises, built over more than a decade of research, forms the basis for my equity investments in recent years. Years of tracking domestic and international macroeconomics have also aided in clarifying the broader direction for commodity investing.
Furthermore, the most critical aspect of investing is understanding one's own limitations. When bond investment managers face the market's transition towards major asset allocation, they should leverage team strength. Beyond utilizing the platform's investment research capabilities, it is essential to frequently discuss and learn from colleagues specializing in equities, commodities, and other major asset classes. I am not one to accept stagnation; I believe one should "live and learn" at every age and not give up self-renewal due to getting older. Regardless of age, I will maintain curiosity for new knowledge, reverence for the market, courage in the face of challenges, and a passionate love for investing!
*Private asset management business, also known as fund-specific account wealth management, refers to fund management companies accepting asset entrustment, establishing private asset management plans, acting as managers, and conducting investment activities for the benefit of investors in accordance with laws, regulations, and asset management contracts.