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Has Jack Ma’s Yunfeng just reinvented fund sales?

Yunfeng Financial Group has launched an app featuring hundreds of actively managed mutual funds.

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Hong Kong-based Yunfeng Financial Group has formally launched a mobile sales app for mutual funds in Hong Kong. The “YouYu Robo Advisor” is a bold attempt to shake up the world of active mutual funds, so that Hong Kong customers start to buy these without requiring a heavy-handed, paper-intensive sales push.

A bevy of global asset managers have lined up to offer funds to Yunfeng’s new product, including AXA Investment Managers and PineBridge Investments.

A total of 13 fund houses comprise the first batch, with another 12 being processed, which should bring the total number of funds available to 343 in a few week’s time, says Byron Wong, a former Goldman Sachs quant strategist and private banker who joined Yunfeng last year.

“We’re calling this ‘Robo 2.0’,” he said at the product launch. “We think it’s better than what’s available in the U.S., and we’re hoping someone else will copy us.”

He means the next generation of robo-advisors personalizes the offer far beyond the standard, static asset-allocation models that other robo-advisors offer.

Something fishy?
“YouYu” translates into English as “Have Fish”, and the app uses graphics of carp bending in various ways as means of displaying customer risk-return profiles. (In Chinese folklore, fish are associated with abundance.)

Yuan Li, the company’s head of wealth management, explained investor preferences can be divided into 25 possible buckets representing different tradeoffs between risk appetite and the financial ability to fill it. (That’s a lot of fish.) It’s still far from individualized, but is a lot more targeted than the first batch of robo-advisors, who tended to put people in four or five generic buckets.

Yunfeng Financial Group is the rebranded version of Reorient Securities, a Hong Kong brokerage acquired in 2015 by Yunfeng Capital, the mainland private-equity vehicle of Alibaba founder Jack Ma and Chinese entrepreneur David Yu.

Although YouYu is designed to be an easy mobile experience, its offering is sophisticated, as it was based on the selection process used by asset owners and other institutional investors, says Li Ting, CEO. A demonstration of the app showed processes in asset allocation, fund manager selection, fund ratings and research that forms the basis of standard institutional protocol.

Institutional process, retail experience
“We don’t just rely on performance for recommendations,” Li told DigFin. “It’s also about a fund manager’s philosophy.” Yunfeng also designed its own ratings system, akin to something Morningstar or Lipper might provide, as well as a selection process modeled after a Mercer or Willis Towers Watson approach.

For now, the company is relying on word-of-mouth and social media to initially promote YouYu among Chinese-speaking finance-industry professionals in Hong Kong – reminiscent of how robo-advisors in the US such as Wealthfront initially gained traction among fellow travelers in Silicon Valley.

“We’ve all worked for large financial institutions or large asset owners,” Li said (she has held a number of senior positions at State Street Global Advisors). “We thought about the services we would provide that we’d enjoy.” From there, the company hopes to expand the service to a broader public.

Challenging traditional distributors
She also says Yunfeng is not trying to displace traditional bank distributors of funds. “Retail banks dominate, they have a huge client base,” she said, although she added, “Clients may want to switch. But we’re not hiring salespeople; it’s all online.”

YouYu also offers lower and more transparent fees, and a low threshold, with many funds accessible to users for as little as US$200.

One fund executive at the event told DigFin this seemed like the way fund sales will go, although whether Yunfeng turns out to be the winner is hard to tell: Alibaba rival Tencent, for example, is also pushing solutions to Chinese retail investors, such as via Howbuy Investment Management and WeBank. But he thinks the results will be known quickly.

“In six months they could disappear or they could become the new Tianhong,” he said, referring to Tianhong Asset Management, which shot out of nowhere to dominate China’s funds industry by managing Alibaba account-related loose cash.

The challenges for Yunfeng may lie around its ability to market itself, and whether its service is simple and easy enough to draw a bigger market. For now the service is in Chinese only, and the company’s next market is therefore likely to be Taiwan, according to Yuan Li, its head of wealth management and another former quant manager. She told DigFin that Singapore could be on the horizon, but not the U.S., due to the onerous restrictions of America’s FATCA reporting law. (Nor will the company accept U.S. citizens as customers.)

The most exciting aspect for the funds industry is that this is a mobile application that doesn’t rely on low-cost exchange-traded funds. The products on it are actively managed, and cover many geographies, asset classes, and sectors, from an AXA U.S. high yield product to a PineBridge Asia ex-Japan small-cap strategy. The app also uses Yunfeng or manager-provided research tips to suggest trades, thus giving the buy side hope that more Hong Kong investors will readily participate in the market.

“This online investment management and robo-advisor is disruptive,” said Rajeev Mittal, regional CEO at PineBridge. “It has the potential to break through and complement the distribution models that have dominated the market.”

Bruno Guilloton, regional CEO at AXA IM, said the initiative was welcome. “Our industry provides technical solutions [that is, complex and not intuitive], but on this platform it’s easy and simple.”

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Has Jack Ma’s Yunfeng just reinvented fund sales?