53
Interpretation of Ping An Trust’s Business Operation June 2014
Interpretation of Ping An Trust’s
Business Operation
June 2014
Cautionary Statements Regarding Forward-Looking Statements
Ping An Trust Co., Ltd.
June 2014
To the extent any statements made in this presentation containing information that is not historical are
essentially forward-looking. These forward-looking statements include but not limited to projections, targets,
estimates and business plans that the Company expects or anticipates will or may occur in the future.
These forward-looking statements are subject to known and unknown risks and uncertainties that may be
general or specific. Certain statements, such as those include the words or phrases "potential", "estimates",
"expects", "anticipates", "objective", "intends", "plans", "believes", "will", "may", "should", and similar expressions
or variations on such expressions may be considered forward-looking statements. Reader should be cautioned that
a variety of factors, many of which may be beyond the Company's control, affect the performance, operations and
results of the Company, and could cause actual results
to differ materially from the expectations expressed in any of the Company's forward-looking statements.
These factors include, but are not limited to, exchange rate fluctuations, market shares, competition, environmental
risks, changes in legal, financial and regulatory frameworks, international economic and financial market conditions
and other risks and factors beyond our control.
These and other factors should be considered carefully and readers should not place undue reliance on the
Company's forward-looking statements. In addition, the Company undertakes no obligation to publicly update or
revise any forward-looking statement that is contained in this presentation as a result of new information, future
events or otherwise. None of the Company, or any of its employees or affiliates is responsible for, or is making, any
representations concerning the future performance of the Company.
Contents
I. China’s fast-growing trust industry
II. Ping An Trust’s Core competitiveness
III. Ping An Trust’s future operation strategies
4,270
5,966
6,980
13,910 14,019
12,829
15,763
17,290
2006 2007 2008 2009 2010 2011 2012 2013
12.7
14.2
9.6
9.2
10.4 9.3
7.7 7.7
2006 2007 2008 2009 2010 2011 2012 2013
Growth trend of total social
financing
（Unit：%）
GDP growth trend
Since the financial crisis in 2008, China's economic growth has mainly been driven by fund…
Data source: 国家统计局
(Unit: RMB1bn)
74%
61% 70% 69%
57% 58% 52% 51%
6%
6%
6% 5%
6% 10%
8% 15%
2%
3%
5% 3%
3% 2%
8%
11%
4%
11%
2% 3%
17% 8% 7%
5%
14% 19% 18% 20% 18%
22% 25% 19%
2006 2007 2008 2009 2010 2011 2012 2013
Structural change trend of total social financing size
其他类融资
银行票据
信托贷款
委托贷款
人民币贷款
……however, the proportions of direct financing have kept rising……
Data source: PBoC
4270 5966 6980 13910 14019 12829 15763 17290
(Unit: RMB1bn)
Other financing
Bank Notes
Trust loans
Entrusted loans
RMB loans
82
958
2,672
3,277
53,000
92
1,200
1,936
3,055
63,000
3,742
80,000
141
2,003
2,591
187
2,497
3,040
4,600
95,000
282
2,158
4,810
5,533
113,000
1,893
2,795
7,354
7,470
134,000
2007 2008 2009 2010 2011 2012
50%
21%
-2%
99%
19%
2,940
5,195
8,289
10,907
151,350
2013
Data source: PBoC, CBRC, CSRC, Securities Association of China, CIRC, Insurance Association of China, China Trustee Association
Trust
Fund
Insurance
Securities
companies2
Bank1
Compound
growth rate （2007/-2013）
……the trust industry stands out in financial disintermediation by leveraging its advantage in "licenses"
(Unit: RMB1bn)
The AUM growth in the trust industry mainly comes from the "single funds trust" business, and mainly takes the form of channel business
Data source: China Trust Industry Association, and management's analysis
48,114
74,706
109,071 (Unit: RMB100mm)
52%
Single trust
41% Collective
trust
CARG
51%
Property trust
Growth structure of the trust industry
Channel businesses are the main focus; help
banks move assets out of the balance sheet;
false financial disintermediation.
Have a poor grasp of funds and assets
low business margin
With lower business risks, yet without active
investment management capabilities
Independent asset screening; independent
fund-raising; real financial disintermediation
Stronger capabilities for customer
development and integrated services
Higher management fee rates and stronger
business profitability
Higher demand for risk evaluation capabilities
and active investment management
capabilities
21% 28% 25%
75%
68%
68%
5%
4%
7%
2011 2012 2013
Sin
gle
C
olle
ctiv
e
With the government's increasing attention on shadow banking, it's a question that warrants consideration, i.e., how will the trust mode which once focused on channel businesses develop in the future?
Uncontrollable policy risks
Weakening advantage in licenses and low barriers to entry
to the business mode
Unsustainable profitability
The trust
industry
call for
transforma
tion
Regulators keep strengthening supervision of shadow banking
Policies make a greater impact on the business, which are uncontrollable.
Controls are removed on homogeneous businesses in asset management
companies, securities companies and fund firms' subsidiaries.
Low market entry requirements; fierce competition takes shape rapidly
Relationship-driven business modes and individual-binded business
resources exacerbate the business instability
Competition among peers causes spreads of the channel business shrink rapidly
Low value added of the business and weak active management capabilities
Source: management's analysis
Regulators keep launching regulation policies, in a bid to push the whole trust industry to build active investment management capabilities
CBRC issued Document No. 99 …Push forward the industry transformation
Clarify the transformation direction
• Innovation in "debt-based trust direct financing
instrument"
• Propose five directions:
− Equity investment: can establish PE
subsidiaries
− M&As
− Securitization of credit assets
− Wealth management
− Charitable trust
• Standardize the existing businesses: cash pool,
channel/credit-linked business
• Properly handle product risks
• Buyer accountability, Seller liability
• Establish long-acting risk control mechanism
• Information registration mechanisms for trust
products
• Improve supervision mechanisms: to oversee
boundaries, put an emphasis on industry
monitoring, fortify on-going supervision, improve
capital regulation, and strengthen management of
trust personnel
• Classified operation mechanisms for trust
companies
Clarify the
transformation
direction
Strengthen risk
control
Improve the
industry
supervision
Data source: CBRC, and management's analysis
Solid growth and market recognition over the past few years
Net profit
Revenue
Revenue from
trust business Rank No.1 among peers
in 4 consecutive years in
terms of comprehensive
strengths
3
2
3
Proprietary fund profit
WM fund profit
Ranking in 2013 -
by core indicator
Net profit
Revenue
structure
(Unit: RMB100mm)
Investment returns
Management fee
(Unit: RMB100mm)
Source: management's analysis, the result of comprehensive strength ranking among peers is sourced from the independent 3rd party institution - use-trust.com.
AUM
(Unit: RMB100mm)
Single trust
Collective trust
Real estate trust
2009 2011 2013
9% 53%
61% 89%
44%
33%
1%
3%
6%
2009 2011 2013
96%
22% 2903
1308 1962
-5%
51%
CARG
32%
14.3
28.2
43.6
40% 71%
67% 60%
29%
33%
CARG
33%
-0.2 5.5
8.3 6.3
5.2
10.8
2009 2011 2013
6.1
10.6
19.1
157%
CARG
Note: profit is broken down as per internal business structure
…Different from peers in business structure and quality, …
The comparation of
the struture of trust AUM The AUM of Ping An Trust.
1396
1962 2120
2903
0.66% 0.88%
0.77% 0.67%
0.92%
1.32% 1.49% 1.17%
2010 2011 2012 2013
行业平均
平安信托
(Unit: RMB100mm)
Data source: annual report of Ping An Trust, China Trust Industry
Association and management's analysis
Comprehensive management fee rates= annual management fee income/
annual average AUM
Single trust
Collective
trust
Property
trust
2%
71%
CARG
28%
25%
70%
5%
61%
33%
6%
The trust industry Ping An Trust
25%
53% 57%
61% 65%
44% 38%
33%
9%
3% 5%
6%
2010 2011 2012 2013
Industry average
Ping An Trust
The comparation of
the comprehensive management fee rates
Data calculated as of 2013 year-end
Annual AUM = (beginning AUM + ending AUM)/2
Personal funds
Institutions'
funds
Insurance funds
Sources of funds AUM at end 2013
150.6bn
82.8bn
25.4bn
• HNWIs' funds
• Private entrepreneurs'
funds
• Large enterprises'
funds
• Non-bank financial
institutions' funds
• Insurance institutions'
investment funds
50%
29%
9%
Percentage
Sources of Ping An Trust's AUM
(1) "Ping An Trust's AUM" excludes that of advisory service for other funds' (including “insurance funds”) investment in other financial products
(2) "Total AUM": supply of 352.3 bn as of end-2013 (including that of advices on insurance funds' investment)
…HNWIs and institutions as fund resources are balanced …
Data source: management's analysis
Banks' funds 31.5bn • Funds of the bank
channel 10%
…and keep strengthening four core competences
Leading investment capability Outstanding risk management capability
1. Diversified and innovative
investment
2. Unique investment platform
3. Leading investment performance
1. Leading risk control system
2. Business risk appetite
3. Risk control mechanism for
funds and assets
4. Risk management in specific
areas
1. Client positioning
2. Strong channel teams
3. Fund-raising capability reaches
hundreds of billions of yuan
4. A large client base
1
3
2
Strong fund-raising
capability
4
Improved service and
operation platform
Good
reputation
and word of
mouth
Investment Risk
control
Channel Operation 1. Excellent client experience
2. Sales supported by E-marketing
3. Operation reforms improve the
efficiency
4. IT building covers all businesses
Data source: management's analysis
Contents
I. China's fast-growing trust industry
II. Ping An Trust's core competitiveness
III. Ping An Trust's future operation strategies
PA Trust's core competitive edges: investment, channel, risk control and operation
PA Trust's
core competitiveness
Investment
capability
Operation service capability
Risk control
capability
Sales Channel
capability
Source: the management's analysis
PE Property Infrastructure Fixed-income Alternative capital market Traditional trust
Innovative
business
Growth capital
Buyout fund
TOT
Family trust
Macro research Sector research Product innovation
Invite renowned economists to be advisors
Build our own macro-research team
Cover sectors in which we heavily invest
Conduct internal cross-sector research
Establish a incubation
mechanism
Carry out targeted incentives
and innovation
FOF
Transportation
Electrical energy
Mineral resources
Structured finance
Bond investment
Sunshine
private fund
Quantitative
hedging
corporate
business
Capable of managing a full spectrum of investment management and financing businesses
Structured
Channel
Mezzanine
investment
Macro research and sector research
Source: the management's analysis; the data are updated till the end of 2013;
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
• We focus on sectors and products, and are responsible for the whole business process including "fund raising, investment, management and exit”.
• Our professional investment platform covers specific sectors and areas.
Credit investment
Equity investment
Properties
to be held
Properties
to be developed
Focusing on sectors
Growth Capital
Buyout
Mezzanine
FOF
Investment strategy
• Subscribe top-level outperforming PE funds in China
• Secondary FOF trading
• Flexible investment approaches, extensive investment targets
• Focus on companies with sufficient cashflow and collateral assets
• Innovate on the deal structure, offer returns higher than the market average level
• Acute sense in capturing market opportunities
• Actively participate in opportunities brought about by deepening reforms and
reforms of SOEs
• Focusing on providing growth capitals for SMEs and plouging segments
• Fully unlock the upstream and downstream resources of invested projects
• Focus on five segments
Health care
Energy conservation and environment protection
High-end manufacturing
Modern service
Fast moving consumer goods
I. PE Investment - clear positioning and stragety
Source:management's analysis
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
Whole-process risk management mechanism
Investment strategy research and
industry guidance
Project screening and assessment
On-site DD, risk assessment
Deal negotiation, structuring
Implementing the project review
and approval procedure
Project exit
Second-round DD, legal and financial
examination
Systematic risk Control
Delivering independent risk
assessment report
Delivering added value of
management
Helping investees build up systems,
teams and competitiveness
Monitoring daily operating indicators
Assisting project exits
Investment
project
initiation
Comprehensive
review
Investment
decision making Deal execution
Post-investment
Management Exit
I. PE Investment – maximize the value of investment project through the whole process
Front Office (Assess and implement
quality projects)
Middle Office (Independent project risk
review)
Back Office (Raise investees' operating
capability)
Source: management's analysis
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
Investment size Our investment performance
(Unit: RMB100mm)
198
244
275
(Unit: RMB1mn) Investment performance of
exited projects
Note: Excl. FOF
Investment cost
5,182
15,164
Amount at exit
• Exit multiples: 2.9x
• IRR: 24%
Holding cost
22,500
36,000
Valuation
• Appreciation
rate: 60%
(Unit: RMB1mn) Investment valuation of
projects not exited
Source: management's analysis; data as of the end of 2013;
I. PE Investment - outstanding investment performance
155 141 168
10
52
52
0
6
5
33
45
50
2011 2012 2013
FOF
Buyout Mezzanine
Growth
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
Notes: the above refers to the balance
390
445
737
CARG
37% (Unit: '00mm)
(Note: Commercial RE business consists of commercial, business,
integrated, equity fund)
II. Property investment -- “Commercial RE" and "financing" business
Commercial RE
Financing
• All holding properties that can generate stable
cash flow
• Develop investment capabilities for the
Group's insurance funds, seek investment
properties that match duration
• Develop holding property investment fund with
the feature of third-party active management
236 259
524 154
186
213
2011 2012 2013
Commercial
RE
Financing
Source: The management's analysis
• An institutional investor engaging fully in the domestic trust, commercial RE investment
and management business
• Based on PA Group's integrated financial platform, as well as the professional 140-man
team's 10 years of accumulation
Balance of property investment
• Seize short-term opportunities
• Control risk in the first place
• Accumulate counterparts and provide
trading clues for commercial real estate
investment businesses
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
• Property value-added rate: 35.3%
II. Property investment -- Introduction and performance of commercial RE
Lloyd's of London Shangdi Hualian Beijing FC Beijing IFC
Overall investment returns
Distribution of industry
dynamics scale
• Domestically: Reinforce domestic
projects, focus on tier-1 cities, and develop
in core tier-2 cities
• Office building, commercial zone: Establish national quality-
asset portfolio, spur the exploration and innovation of office building
Beijing
Jingzhou
Shantou
Guangzhou
Shenzhen Yuxi
Shang
hai
Suzhou
Chengdu
Chongqi
ng
Shenyang
• Logistics storage, industry: By virtue of
Shanghai's FTZ, develop new market
opportunities, spur the exploration of the
supporting projects around the FTZ.
• Overseas: Spur the development of overseas business, focus on
UK, US, Germany-based asset acquisition and business
cooperation
Regional strategy
Industry dynamics strategy
Guangzhou Lotus Shanghai Xuhui Executive Apartment
Chongqing FC Chengdu FC
Investment strategy Investment performance
57%
39%
4%
写字楼项目
商业项目
酒店公寓项目
Source: The Management's analysis; statistics as of end-2013;
• As of end-2013, the existing
scale stood at 21.3bn
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
Financing RE business
Tianjin
Shan
ghai Chengd
u Hangzho
u
Wuxi
Shenzhen
Shenyang
Chongqing
Xiame
n
Beijing
Guangzhou
Fuzhou
Xi'an
Harbin
Nanjing Wuhan
Changsha
Kunmin
g
Jinin
g
II. Property investment -- "Financing" business is rigorous, strict and safe
Source: The management's analysis
(A) Market movement prediction
• China’s real estate market will remain sluggish for
certain time but long-term demand still has potential
(B) Strict selection of counterparts with differentiated
management
• Strengthen maintenance, research and analysis of
existing counterparts, dig deeper into the demand
and potential
• Large developers: liquidity management and flexible
risk control measures
• Small developers: make prudent choices, enhance
the quality of projects, tighten risk control measures
and post-lending management
• Enhance the preservation and analysis of existing
trading counterparties, in-depth exploration of
relevant needs and potentials
(D) Continuously conduct stress test and dynamically
monitor business risks
• Business development is mainly carried out in
tier-1/2 cities, along with active business risk
management through region selection
(c) Distribution of business areas
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
A、Opinions on development trend of China's RE market
• China's RE market is flagging in the short run, still has potential in the long term
• Consensus on market adjustment, differentiated polarization due to the different types of city and capabilities
of developer
• Preference to quality counterparties, the cities with reasonable demand and supply, the projects located in key
areas
• Preference to inflexible or improvement projects
Market
predictions
Trading volume
• The Jan-May sales volume significantly
fell from the previous year, but rose
from 2011, 2012
• Currently, the credit environment is
relaxing, with continued wait-and-see
sentiment
• Excess inventory will push developers
to lower prices, and the trading volume
will support the adjustment of supply
Price Market demand
• Purchasing power: The growth in
Residents' incomes is higher than home
prices over the same period, the
purchasing power is not obviously
worsened
• Price trend: The trend for home prices
is going downside, the pressure from
growing inventory is pushing the drop in
prices. Downward adjustment of tier-1
cities is fast; tier-3, 4 cities face the drop
in prices
• Judgment on price drop risk: The
cities (Huhhot, Dalian, Fuzhou,
Hangzhou etc.) facing heavy pressure
from growing inventory may see the
price drop risk; the ones with small
amount of supply may see sustained
home prices.
• Urbanization: For every 1% of
urbanization progress, there will be a
new demand for 5mm corresponding
homes
• Old home replacement: Along with
the improvement in residents' live
quality, the old homes built during the
1970s and 1980s could need to be
replaced by new ones.
• Inflexible demand: Long-term
inflexible demand drives the steady
growth of demand for homes
Source: The management's analysis
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
B、Always eye selection of high-standard counterparties…
Note:
Mid- and large-sized counterparties refer to the counterparties
with the annual sales volume of more than RMB15bn and the net
assets of more than RMB10bn
Analysis of counterparties Key associated developers for financing RE
88%
12%
Combined scale:
RMB52.4bn
Source: The Management's analysis; statistics as of end-2013
Large and Medium Counterpaties
Other Counterpaties
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
… Proportion of high-credit counterparty rises, easing uncertainties
Growth in counterparty's sales volume
• Jan-May, the sales volume of the main
counterparties of PA Trust beat the market
average
National sales volume of
commercial housing • -10.2%
Key trading counterparties for PA
Trust
Change rate on year for Jan-May sales volume
Note: Languang is an unlisted enterprise, the disclosure of sales data is on an
irregular basis, the relevant yearly growth data is for Q1
B and B+
B- and below
BB- and
above
7% 17% 12% 5%
37% 26%
24%
18%
56% 57% 65%
77%
2011 2012 2013 201405
100% 100% 100% 100%
Trend for change of counterparty credit rating
• Evergrande RE
• Languang RE
• Jinhui
• Yajule
• Logan
• Guangzhou R&F
• Shimao
• Kaisa
• 64.4%
• 14.9%
• 67.6%
• 27.5%
• 66.7%
• 40.0%
• -5.0%
• 4.4%
Source: The management's analysis
Internal
ratings
External
ratings
BB- and above AA- and above
B- to B+ BBB to A+
CCC+ BB and below
Internal
rating
stricter than
external
rating
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
C、Manage RE business risks by improving geographic distribution and selecting project duration
7%
56%
27%
10%
一线城市
二线城市
三线城市
其他城市
Note: Data is as of Dec, 2013
Source: The management's analysis
Distribution of business areas Trend for change of project duration
2.3 years 2.2 years
2012 2013 Jan-May of
2014
1 year *
Note:
* : New project duration
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
D、Stress test: RE business risks under control
• 1 year before
maturity
• Inadequate
cash multiple
Project
risk
Counterparty risk
• Inadequate
cash
multiple
• Long time
before
maturity
• Cash
multiple
between 1
and 1.5
• Cash multiple
above 1.5
• Sufficient
remnant funds
• High degree of
security
• Relatively tight
money supply
• Relatively safe
• Tight money
supply
• Liquidity risk
exists
• Extremely tight
money supply
• High liquidity
risk
Low
High
High
Stress test results RE business' stress test model
Controllable risks in RE business
In the worst scenario (collection falls by 35%) where risks exist in a certain project, the company will take the following measures: Build a working team of front, middle
and back offices Analyze projects and counterparties
carefully Work out solutions Designate a person for follow-up and
regular reporting to the management
Major
risky
segments
Source: Analysis of the management
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
… Smooth payment for RE trust plans by adhering to its risk management criteria
Regular risk control mechanism-five firewalls
Extreme event handling mechanism-four extinguishers
1. Professional credit rating of partners
2. Control investment risks with quantitative
indicators
3. Counterparty entry, project selection and
structuring comply with risk control guidelines
and differentiation strategy
4. Due diligence and examination of front and
middle offices and external parties
5. Improve post-investment management to
control risks
1. Counterparty offers Group's credit guarantee
and cash flow support
2. Dispose project companies' equity and
collateralized land
3. Repay loans with margin/subordinate funds
4. Counterparty's repo and equity return
distribution
Smooth payment for RE trust plans to date
(Unit: RMB100 mn)
100
204
2012
262
2013 2014E
Paid 90
Source: Analysis of the management
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
III. Infrastructure investment – significant investment capabilities focusing on infrastructure, energies and other resource circle
Investment Strategies
• Comprehensive use of various kinds of funds such as insurance funds, corporate pensions, trusts, etc.
• Investments made in equities, debts, mezzanine, etc. for matching long-term funds with long-term investments
• Build the infrastructure portfolio with a focus on transportation infrastructure, energy as well as power, and mineral
resources
• Leading capabilities in investing in highway projects, significant capabilities of insurance debt plan investment
CARG
39%
307 365
596
Energy
Infrastructure
Exsisting investment size – by sector
Source: management analysis
Highway
Wind power
Nuclear power
High speed railway
• Taiyuan- Jiaozuo
Highway
• Tian Run Power
• China General
Nuclear Power Group
• Beijing -Shanghai high
speed railway
• Jiangxi high speed
railway
Investment in key areas
276 331
534 30
34
61
2011 2012 2013
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
IV. Investment strategies on fixed income and alternative capital markets Business type
Business
description Risk control
• Market risk control standards: the investment scope excludes
the secondary market and high-risk derivatives
• Credit risk control standards: strict restrictions on the ratings of
the assets invested. Currently, the debt assets with ratings
above BB- account for 92%
• Project investment risk control standards
• Concentration degree control standards
• Strict liquidity management
Capital Pool
Bond
• Interest rate risk control standards
Interest rate-sensitive assets: adopt DV01 monitoring
Assets which have an impact on the interest income of
future re-investments
• Strict control on bond liquidity risks and credit risks
• Fundamentals, fund supply, monetary policy, and bond supply
and demand serve as a basis for a proper grasp of bond
investment opportunities
• Main investment
direction: interbank
and exchange-listed T-
bonds, financial bonds,
company bonds,
corporate bonds, short-
term financing bills and
medium-term notes
• Fixed income
• Split 2/3-year assets with
stable returns and high
credit quality and allocate
customers' short-term
funds
• Main investment direction:
Bank deposits
Money market funds
Bond funds
Interbank bonds
Low-risk fixed-income
products
Data source: management's analysis; data and statistics are as of the end of 2013.
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
IV. Investment strategies on fixed income and alternative capital markets
Capital markets
• Research on capital
markets both at home
and abroad
• Sunshine private funds
• Hedge funds
• Strengthen market research
• Select quality investment advisers
• Build an open-end product platform
Pledge
financing
• The overall weighted average loan-to-value ratio of
the business stays at around 50%.
• The mode of stock sell and repo via block trade
makes business risks extremely low
• Control risks by adopting stock pledge and
registration for the quadripartite agreement and
requiring for guarantees
• Stock pledge
• Leveraged
lease,enterprises'
receivables,
factoring, pawn
shops, etc.
Data source: management's analysis; data and statistics are as of the end of 2013.
Business type Business
description Risk control
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
V. Traditional trust business — focus on actively-matched business with fee rate above industrial average
Strategies:
Emphasize active management and focus on
Control the size of business with low fee rate such as
bank business and government business
Channel business and government platform business
didn’t increase for 3 consecutive years
664
1049 1041
11年 12年 13年
Additional portfolio l business size over the
years (RMB100mn)
58 53 43
110 107
70
11年 12年 13年
Prepose risk control and compliance functions to control risks
Simplify the process and automate the system, establish a standard contract bank
Build the most effective business support platform in the industry
• Strategies:
• Management strategies
Mean of the industry PA Trust
Source: management analysis
General management fee rate of single trust plan
(BP)
The functions like risk control and legal services are placed in advance to rigidly control risks
The liability side are mainly a single corporate customer or capital with enough risk judgement, risk decision and risk tolerance capacities
• Risk Management strategies
Note: the combined management fee rate of sector single trust plan is
based on estimations
PA Trust's
core competitiveness
Invest
ment
capabil
ity
Operation service capability
Risk
control
capability
Sales
Channel
capability
PA Trust's core competitive edges: investment, channel, risk control and operation
PA Trust's
core competitiveness
Investment
capability
Operation service capability
Risk control
capability
Sales Channel
capability
Source: the management's analysis
Ping An Trust
Core competitiveness
Investment
capability
Operation service capacity
Risk
Control
capabilit
y
Sales
Channel
capability
A comprehensive and quantifiable risk management system covering six risky segments-the foundation for business development.
Stress test
Develop a quantitative evaluation model targeting specific/event risk
Regular stress test reports
Evaluation of middle-office
business Evaluate project risks and work out
risk control measures Carry out on-site due diligence and
provide an independent DD report Review investment models, risk
control measures and deal structure, give consolidated comments
Risk identification,
quantification,
counterparty evaluation
Identify business risks Quantify on/off balance
sheet risks A separate counterparty
evaluation system
Risk monitoring
and mitigation
Business line and product report system and limit monitoring
Identify business risks in advance and look for countermeasures
Risk management
philosophy Identify and quantify risks and
formulate management strategies based on Basel II and the Management Measures for Trust Companies' Net Capital
Risk management strategy that separates investment, approval and management to control business risks in an all-around way
Risk performance
Risk capital allocation
The risk performance appraisal system covers all businesses; risk/gain was made comparable
Risk capital allocation Improve funds allocation and
raise ROE
Concentration
risk
Market risk
Operational
risks
Liquidity risk
Compliance
Risk
Credit risk
Source: Analysis of the management
Fund end: an investor qualification mechanism was built
Personal
funds
Insurance
funds
• Funds of high net worth
individuals (HNWIs)
• Funds of private
company owners
Institutional
funds
Description Risk
evaluation
• Center on bank funds
• Large enterprises' funds
• Other financial institutions' funds
• PAG's insurance funds
• Other insurance
companies' funds
HNWIs'
funds
with great
uncertainty
Qualified
institutional
investors,
low risk
Risk control
strategies
• Proprietary direct marketing
channels
• Strict entry requirements for
customers
• Qualified individual investors
• Select quality institutions
• Select quality institutions
Source of funds
Source: Analysis of the management
Ping An Trust
Core competitiveness
Investment
capability
Operation service capacity
Risk
Control
capabilit
y
Sales
Channel
capability
Qualified
institutional
investors,
low risk
For qualified individual investors: an evaluation and entry mechanism to ensure product risk tolerance
Customer
entry
process
• KYC
• Risk appetite test
Step 1 Step 2
• Customer-risk
matching model
• 5–class classification
of products risks
• Risk matching
• Investor education
• Sufficient risk reminders
• Investment risks
confirmation letter
Step 3 Qualified
investor
• Follow-up KYC
• Risk education
• 2013: Classified risks of 450 new products，and customer-risk match ratio is more than 98%
• 2014: Impose trading restrictions on customers with investable assets of below 5 mn
Customers with investable assets of below 10 mn are prevented from buying PE products
Source: Analysis of the management
Ping An Trust
Core competitiveness
Investment
capability
Operation service capacity
Risk
Control
capabilit
y
Sales
Channel
capability
Asset end: control asset risks with a well-developed risk management process
Select
counterparty
Select
project
Select
industry Risk control
• Quantitative rating
system
• Independent
counterparty
evaluation
• National leading
enterprises
• Investment term
control
Post-investment
management
• Avoid
industries
with
overcapacity
• choose
medium and
small
counterparti
es carefully
• Regional
restrictions • Credit guarantee
• Asset
collateralization
• Closed-end fund
supervision
• Equity pledge
• Control a stake
• A well-
developed
post-
investment
managem
ent system
Source: Analysis of the management
Ping An Trust
Core competitiveness
Investment
capability
Operation service capacity
Risk
Control
capabilit
y
Sales
Channel
capability
An enterprise rating system to impose more restrictions on counterparty entry for risk control purpose
Internal rating
Enterprise credit rating system
External support
Government Financial
institutions
Shareholders
External environment • Macro economic background • Industrial environment • Regional economic environment
Enterprise quality: •Corporate governance structure •The management's quality •Internal management •Corporate culture •Position in the industry
Business status
•Operation strategies
•Operation results
•Core competitiveness
•Resource allocation
•Growth
Financial status
•Accounting policies
•Asset quality
•Financial structure
•Profits
•Financial flexibility
Solvency
•Debt repayment
willingness
•Cash flow
•Refinancing capability
Special items:
•Affiliated enterprises
•Accounting
information's quality
•Contingent liabilities
Internal factors External factors
• Rating standards
are higher than
those of external
rating agencies
• Credit rating for
more than 1,000
counterparties
Ping An Trust
Core competitiveness
Investment
capability
Operation service capacity
Risk
Control
capabilit
y
Sales
Channel
capability
Source: Analysis of the management
For the special counterparties, like “government”,
a special team is to be set to have a professional
study and judgment
Unit: trillion
Maturities of local government debts
Unit: trillion
Grading system
• Build a research database covering
governments of top 200 prefecture-level
cities by GDP
• Focus on how "state-owned land use right
transfer " contributes to local governments'
fiscal revenue
• Collect and analyze information on
governments' actual liabilities
• Create a model to analyze governments'
fiscal expenditure and evaluate their
solvency
Source: Audit Results of Government Debts, Analysis of the management
• A comprehensive assessment found that government
debt risks in China was generally controllable
• Potential risks exist in some regions
Enterprise credit rating system
Balance of government debts June 2013
Repayment+
guarantee+
bailout
Repayment+
guarantee Central
Local
H2 2013
2014
2015
2016
2017
2018 and thereafter
Ping An Trust
Core competitiveness
Investment
capability
Operation service capacity
Risk
Control
capabilit
y
Sales
Channel
capability
… with clear strategies and controllable risks
• Cooperate only with quality governments
• Formulate differentiated investment strategies and risk control
measures according to governments' quality
• Set out entry requirements, cooperate with the leading 25% of
local governments and their affiliated vehicles to avoid tail
default risk
• Exclude cities with over-dependence on land
• Exclude cities in which highly risky sectors prevail in the
industrial structure
• Grade risks in prefecture-level cities by government financial
strength, dependence on land and interest payment capacity;
formulate investment strategies
Low-risk cities: "government credit" + "mortgage and pledge
using assets with cash flows"
Medium-risk cities: "mortgage and pledge using assets with
cash flows"
High-risk cities: avoid
Government
business
investment
appetite
Government
business
investment
strategies
• Ping An Trust's existing
government business is
progressing well with
risks under control
• Prudently carry out
government business
according to risk control
standards and
investment appetite
Ping An Trust
Core competitiveness
Investment
capability
Operation service capacity
Risk
Control
capabilit
y
Sales
Channel
capability
Source: Analysis of the management
Stable operation as of end-2013, with adequate net capital to cover the risk capital
Indicator 2011 2012 2013 2014.3 Regulatory
requirement
Net capital (RMB100 mn) 104.62 124.12 129.37 132.69 ≥RMB200 mn
Net capital/sum of risk
capital for various
businesses
192% 261% 202% 184% 100%
Net capital/net assets 77% 82% 76% 77% 40%
192%
261%
202% 184%
0%
100%
200%
300%
2011.12 2012.12 2013.12 2014.03
Net capital/sum of risk capital for various businesses
Regulators'
bottom line
Source: Analysis of the management
Ping An Trust
Core competitiveness
Investment
capability
Operation service capacity
Risk
Control
capabilit
y
Sales
Channel
capability
PA Trust's core competitive edges: investment, channel, risk control and operation
PA Trust's
core competitiveness
Investment
capability
Operation service capability
Risk control
capability
Sales Channel
capability
Source: the management's analysis
Ping An Trust
Core competitiveness
Investment
capability
Operation service capacity
Risk
capability
Sales
Channel
capability
Growth of China's HNWIs
(1k)
Began to provide private wealth management service in 2008 to seize opportunity especially among HNW customers.
Source: China Trust Industry Report (2013) by McKinsey & Company, Analysis of the management
Customer classification
by family
99.9%
HNW
Affluent
Mass
Low-income
0.1%
2010 2015E
875
1929
+17%p.a.
2010 2015E
21.0
57.6
+22%p.a.
Positioning of external
customers Positioning of intra-group customers
Total investable assets of China's HNWIs
(RMB trillion)
Positioning
Trust
Banking
Insurance
Securities
Consumer
finance
A team of more than 600 professional wealth managers in 13 major cities as of end-2013
Processional
team of wealth
managers
3. Appraisal
and service
management
2. Training
system
1. Strict
requirements
• Finance and relevant majors
• Bachelor's degree or above;
• Experience in foreign-funded or
large domestic banks
• Newcomers, higher positions and
directors
• Expertise and sales skills
• Overall quality including etiquette and
ethics
• Basic laws
• Service quality management
• Career planning, survival of the
fittest
Growth of wealth managers
(Unit: person)
Source: Analysis of the management
123
599
609
2009 2011 2013
Ping An Trust
Core competitiveness
Investment
capability
Operation service capacity
Risk
capability
Sales
Channel
capability
Channels' capacity keeps growing...
Rapid growth in clients and
assets
Source: Analysis of the management
7693
12417
18352
21600
2010 2011 2012 2013
282
652
973
1506
2010 2011 2012 2013
CARG
41%
CARG
75%
Over 20,000 HNW individual
customers
150 bn AUM of individual
customers
Sustained growth in RMs'
capacity Group integrated finance's
remarkable contribution
87 109
134
247
2010 2011 2012 2013
743
1299
2101
3708
2010 2011 2012 2013
AUM per capita (mn)
Monthly raised funds per
capita (10k)
3813
6713
10905
13508
2010 2011 2012 2013
HNW customer migration
from Group (mn)
AUM brought by integrated
finance (100 mn)
122
329
540
839
2010 2011 2012 2013
Ping An Trust
Core competitiveness
Investment
capability
Operation service capacity
Risk
capability
Sales
Channel
capability
PA Trust's core competitive edges: investment, channel, risk control and operation
PA Trust's
core competitiveness
Investment
capability
Operation service capability
Risk control
capability
Sales Channel
capability
Source: the management's analysis
Ping An Trust
Core competitiveness
Investment
capability
Operation service capacity
Risk control
capability
Sales
Channell
capability
Improved operation, IT systems and services and lowered operation risks with the highest level of input
Source: Analysis of the management
User experience
Marketing
support system
Operation
process
IT systems and
platforms
• Easy purchasing and query
• Excellent experience, zero
complaint about operation
整体IT应用架构规划，系统模块和功能边界的定义
•各业务条线需求分析设计
• IT项目的管理，协调需求排期和IT实施，推动需求、
开发、测试到成功上线的整个过程
系统上线后运营和相关问题的支持、协调
通过完善系统功能，提升系统控制能力，以及新技术的不断创新应用，支持业务持续增长
Keep improving in an all-round way
• E-marketing for RM
• Sales end risk control
• Restructured 158 processes
• Improved efficiency by 50%
• Sharing of outsourced
operation, capacity up 38%
• 3-year IT system building with
250 mn investment
• 130 sub-projects went live
Contents
I. China's fast-growing trust industry
II. Ping An Trust's core competitiveness
III. Ping An Trust's future operation strategies
Macro economy, financial system and new technologies will bring new opportunities
Source: Analysis of the management
Direct financing keeps growing
Disintermediation accelerates
New technologies mushroom
1
2
3
A Share Enterprise bond
CRB
RE in tier-1 cities
The U.S. stocks The U.S. REIT
HSCEI RE trust
PE
Pledge
Structured finance
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
0% 20% 40% 60% 80% 100%
a
n
n
u
a
l
i
z
e
d
r
e
t
u
r
n
o
f
v
a
r
i
o
u
s
a
s
s
e
t
s
risk degree of various assets (yield volatility)
"risks-return" features of various assets in the past 5 years
Source:
Source:
Note:
• Returns and volatility of assets: data calculated from 2009 to this Sep.and are monthly annualized returns
and monthly volatility
• Returns and volatility of trust products: calculated based on the actual return of matured projects from Jul.
2012 to date
• red arrows in the chart indicate our expectation of the "risk-yield" portfolio of related assets in the mid-term
Our forecast on investment opportunities in the next 5 years
• A shares/hedge fund ?
• Corporate bond ?
• PE ?
• Overseas investment ?
Strategies in the next 5 years
Source: Analysis of the management
Strong Weak Major investment capabilities to be strengthened
Strengthen the capability to invest in six major sectors and seize more opportunities
Investment/products
PE
Real estate
Infrastructure
Non-standard
assets/credit
Bond/stock
market
Overseas
investment
• Improve PE team's capability to study industries with
great potentials • Improve research and investment capability
(consumer services/healthcare/high-end
manufacturing/environmental protection/TMT/Internet)
Capability assessment Concentration
Improve the capability to invest in real estate and
infrastructure
Be able to participate in state-owned asset
restructuring/acquisition
Seize opportunities in non-standard asset securitization/non-traditional financing Traditional channel businesses Securitization of non-traditional assets including RE/factoring
/auto loan/credit card
Seize new opportunities in bond/stock market
Seize overseas investment opportunities
1
2
3
4
5
6
Source: Analysis of the management
Be customer-oriented, diversify channels and enhance coordination to improve user experience and retain customers
Private
wealth
Remote
terminal Lufax
Distribution
by branches
Distributors
Channel positioning
• C: focus on HNW
customers
• F: banking and insurance
funds
• B: funds of businesses
Source: Analysis of the management
Thank you!
