Ping An Asset Management: HSBC advised to carefully study proposals to improve operating performance and enhance value


Mr. Huang Yong, Chairman of Ping An Asset Management, interviewed by various international and local media on the recent market issues regarding Ping An and HSBC. Below is a summary of the Q&As.

1. The recent change of HSBC’s CFO has attracted much attention in the market, with rising speculation about HSBC’s next CEO. What are Ping An’s views?

A: After HSBC publicly announced the change of CFO, we were also informed by HSBC of the situation. It is not appropriate for us to comment on HSBC’s management, but one thing is for sure, we believe that the criteria for evaluating the CEO of any company should be his or her ability to generate good performance and long-term value for shareholders on a sustainable basis.

2. Regarding generating good performance and long-term value, Ping An has publicly made a number of comments on HSBC’s operating performance, spin-off, etc. Can you talk about this in detail?

A: Recently, there has been some misunderstanding in the market regarding Ping An’s views on HSBC. We would like to take this opportunity to clarify that Ping An has never made any public comments on HSBC’s performance, spin-off or other topics. We have repeatedly reiterated that, as one of HSBC’s major shareholders, we are willing to study and support any proposals that are conducive to improving HSBC’s operating performance and enhancing the company’s value, and that are helpful to HSBC’s development strategies and business strategies.

3. Has Ping An communicated with HSBC’s management about HSBC’s development strategies and business tactics?

A: Ping An has had a deep relationship with HSBC for more than 20 years, and has maintained a good relationship. In 2002, HSBC became the largest shareholder of Ping An and gave us a lot of help. Especially in the early stage of Ping An’s development, HSBC provided us with advanced management experience including operations and risk control, and we are still grateful for them even now for the support that they provided in that period. Meanwhile, over the past decade, Ping An has also provided practical experience and support to HSBC in innovative areas such as fintech. In 2015, we invested in HSBC and became one of its major shareholders, because we had trusted in its century-old brand, and had expected that they be able to continue delivering sustainable performance, stable historical dividend policy, and robust growth strategy.

We have long maintained communication with HSBC’s management and some of its directors regarding HSBC’s development strategies and business tactics. Despite differences in views, both parties have maintained open, friendly and constructive communication at all levels. However, in recent years, as you have observed, the market has been rather disappointed with HSBC’s poor performance, dividends, market capitalization, etc.

4. In what ways is Ping An disappointed with HSBC’s performance, etc.?

A: Ping An has a fiduciary duty towards our own life insurance policyholders. As one of HSBC’s major shareholders, we are most concerned about HSBC’s performance, dividends and market capitalization. However, in recent years, HSBC’s performance on these indicators has been far below that of an equivalent peer group and far below the expectations of most shareholders. Particularly, there are 3 main issues in terms of performance:

1) HSBC’s RoTE has underperformed its peers. Over the past five years, HSBC’s RoTE only averaged 7.0%, which is far too low in absolute terms and also low relative to peers that also suffered from a low interest rate environment. Last year HSBC’s delivered a RoTE of just 8.3% which far below the 12.3% average RoTE delivered by an equivalent peer group, who on average generated 59% of their revenue from Asia which is similar to HSBC’s own Asia revenue contribution of 51%. We acknowledge that there is no perfect comparable for HSBC Group, so internally we created a synthetic peer by taking an average performance of 12 banks that in aggregate have a similar Asia revenue mix to HSBC Group’s own revenue mix, and compare HSBC’s RoTE and CIR performance to that average. We note that the static official peer group that HSBC uses in its remuneration reports only generated 22% of revenue from Asia in FY21, which we believe is not an appropriate comparison group.

2) HSBC’s market ranking lags behind its peers. Out of HSBC’s 8 separately reported territories in Asia, HSBC ranks Top 10 in lending in only 2 territories (1st in Hong Kong, 10th in Australia). In the other geographies, HSBC’s ranking hovers around 20th to 35th, and only ranks 58th in Chinese Mainland. As of 2021, HSBC’s loan market share in Chinese Mainland is 0.15%[1]. Given that Asia is HSBC’s most important business and profit contributor, we worry about their long-term sustainable competitiveness and scale in these markets.

3) HSBC’s operating performance lags behind its peers. Our post-investment team did a detailed benchmarking analysis of HSBC’s operational performance and found that HSBC Group ranked bottom quartile in 45% of key operating metrics and HSBC Asia ranked bottom two or worse in 56% of key operating metrics amongst peers in FY21. For example, we are worried that HSBC Asia revenues has been declining for the past two consecutive calendar years, when the rest of the market and key peers have been growing. HSBC’s cost-income ratio is also materially higher than peers at both HSBC Group and HSBC Asia level.

Over the past 2 quarters, we have started to see HSBC’s performance thanks to rising interest rates. However, we believe such an upcycle in rising rates is temporary and unsustainable. It can temporarily improve performance and capital return, but we pay more attention on HSBC’s business strategy and development strategy, as well as its sustainable performance improvement and long-term value growth.

5. What are Ping An’s specific suggestions on HSBC’s business and development strategy?

A: In recent years, Ping An has engaged with HSBC management in candid and in-depth exchanges of views around its operations and development strategy to help the company improve business performance and increase long-term growth value. We have put forth suggestions in the following three aspects:

1) Allocate global resources effectively. HSBC Asia contributed 68.7% of total pre-tax profit in 1H22, whereas Europe and North America contributing less than 10% respectively and Latin America less than 5%. Asia is the main driver of HSBC’s profit growth. However, HSBC’s global resource allocation strategy in the past has made the Asian business compensate its European and American businesses, making HSBC Asia unable to gain sufficient resources for business growth. We suggest HSBC to review its global resource allocation strategy, reallocate more resources to Asia to gain higher return, and exit sub-scale peripheral ex-Asian markets.

2) Improving efficiency by increasing revenue and reducing costs. Although HSBC management claimed its cost-cutting efforts are paying off, its cost-income ratio is still up to 64.2%, which is 13% points higher than an equivalent peer group mean. Meanwhile, HSBC Asia’s cost-income ratio is 58.7%, which is 18% points higher than the 40% mean of an equivalent Asia banking peer group. We suggest HSBC be much more aggressive in radically reducing its costs to close the huge ‘cost-income ratio gap’, for example, by reducing its operating costs such as manpower and IT, as well as reducing its ‘global headquarters costs as a % revenue’ compared to that of an equivalent peer group. This is the most important, urgent and absolutely needed action for HSBC to improve its business performance, reducing costs and increasing efficiency, particularly amid slowing growth in the global financial industry.

3) Focus on the development of the Asian business. Since HSBC’s management proposed the “Pivot to Asia” strategic upgrade in February 2020, the market hasn’t seen any substantial actions or material results over the past two to three years. In April 2021, HSBC publicly announced it would relocate four senior executives to Hong Kong; however, this move has not been completed despite having been 18 months since the announcement was made. To our understanding, three out of HSBC’s four global business line CEOs only have one year’s work experience or less in Asia. As such, we suggest HSBC take comprehensive consideration of various factors, including growth, return, risk, competitiveness, etc. and take effective and concrete measures to implement the “Pivot to Asia” strategic upgrade, strengthen its market position in Asia and capture the opportunities arising from the rapid development in the Asian market, while striking a balance between its global finance model and cross-border systemic and geopolitical risks.

6. What’s Ping An’s view on how HSBC can strike a balance between its global finance model and cross-border systemic and geopolitical risks?

A: HSBC is known for its ‘global finance and banking’ model for years. As one of the major shareholders that focus on long-term value, Ping An recognizes that global finance model has played a role in creating a unified brand and providing global banking services to a selected core group of clients; however, to what extent it creates value and contributes to businesses cannot be quantitatively verified. This has always been a controversial topic.

As an old Chinese saying goes, “in the first thirty years, east side of the river enjoys fortune; in the next thirty years, the fortune goes to the west side”, which means tides and trends are so fickle that they could totally reverse. The current global macroeconomic landscape has experienced great changes. The global finance model that once dominated and shaped the global financial industry in the last century is no longer competitive; its weaknesses, costs and risks have become increasingly evident, particularly following the two global financial crisis in 1997 and 2008. Since then, the financial market risks and geopolitical risks and other negative impacts that are transmitted across the borders, have continued to increase. On the one hand, governments and regulators have become concerned with, and often even averse to the pressure of having to take all the risks of global banks across their entire global business in their home location. On the other hand, global banks have to bear the heavy burden of overlapping regulatory costs, risk costs and capital needs when operating globally. In recent years, multinational banks in the Europe and US have announced their exit from businesses in some regional markets and further shrunk their global footprint.

We suggest HSBC should also plan ahead and think of what a “new global model” should look like, carefully evaluating the value and business contribution of each aspect, while striking a balance between its global finance model and cross-border systemic and geopolitical risks to achieve long-term, sustained and steady operation. Just divesting a few small markets or businesses will not fundamentally solve these issues.

7. How would Ping An comment on the discussion around HSBC spinoff which is spreading in the market?

A: Many HSBC’s shareholders have communicated privately with Ping An on this issue over the past several years. There have also been a lot of discussions in the capital market and media; some support it while some are against it. We note that, despite different views, we all share a common goal to help HSBC improve its long-term value.

As one of the major shareholders of HSBC, what Ping An cares the most is for HSBC to improve its business performance, create and enhance its long-term value. We have always upheld a candid and open attitude and keen to listen to all voices in the market. We will support any initiatives including a spin-off that are conducive to improve HSBC’s performance and value; we will consider any suggestions that will help HSBC improve its development and operation strategy. Meanwhile, we would also suggest HSBC adopt an open attitude by studying the relevant suggestions carefully and prudently and incorporating constructive views into its prioritized agenda, rather than attempting to simply bypass and reject them.


Ping An Co-CEO Jessica Tan: Diversity key to changing evolving Ping An’s business models to serve 200 million+ in China


Adopting new technologies and their associated cultures has been key to transforming Ping An Insurance (Group) Company of China, Ltd. (hereafter “Ping An” or the “Group”, HKEx:2318; SSE:601318), said Jessica Tan, Ping An Co-CEO, speaking to Swiss business school video magazine I by IMD.

In the interview with IMD (International Institute for Management Development) Business School President Jean-François Manzoni, Ms. Tan said Ping An has become Asia’s largest insurance company, with more than 223 million customers and 657 million internet users of its lifestyle services. The 34-year-old company sold US$110 billion of insurance premiums last year and has about 300,000 employees and half a million sales agents. Its market capitalization grew fivefold between 2007 and 2019, and currently hovers around US$120 billion to US$130 billion.

Headquartered in Shenzhen, China’s leading technology hub, Ping An has also established itself as one of the country’s leading digital innovators, especially in the areas of fintech, artificial intelligence and digital healthcare.

Ms. Tan said: “We aim to deliver what we call lifestyle and financial services to all our customers. The way that we think about this is financial services is not a product on its own. Financial services seek to serve a lifestyle need. We believe that financial services and lifestyle services are intertwined very clearly.”

Ping An saw the need for integrating various services on a single platform and adopting new technologies, which required talents with different skill sets and backgrounds to join the company around ten years ago. Ms. Tan joined Ping An in 2013 as the company began its technology transformation. “When we started a lot of these tech businesses, we hired a lot of non-financial services folks,” said Ms. Tan. “We started off with a very open and embracing culture.”

Ms. Tan is Singaporean. “We’ve been three generations outside of China,” she spoke of her own family. “There are lots of executives like myself. There are even executives in our top 100 executives who are even non-ethnic Chinese. We have Koreans, Americans … some of them do not even speak Chinese, they have the interpreters with them all along. We believe that people are what drives us.

“With diversity comes, as I’m sure you know, lots of different views, backgrounds, way of working,” said Ms. Tan.

The technology and ecosystem businesses incubated by Ping An, such as OneConnect, Lufax, and Ping An Heath, contributed about RMB80 billion in revenues and about RMB15 billion in profits in 2021.

Today, Ping An’s lifestyle services span financial services, such as wealth management and lending, healthcare including elderly home care service, automobile services, and smart city service.


Ping An’s First UCITS Umbrella Fund Obtains SFC Mutual Recognition for Public Offering in Hong Kong


Ping An of China Asset Management (Hong Kong) Co., Ltd. (PAAMC HK), has obtained mutual recognition authorized by Securities and Futures Commission of Hong Kong (SFC) for the public offering of its first Undertakings for Collective Investment in Transferable Securities (UCITS) umbrella fund in Hong Kong, announced Ping An Insurance (Group) Company of China, Ltd. (hereafter “Ping An” or the “Group”, HKEX: 2318; SSE: 601318).

Ping An of China Asset Management Fund (the Fund), together with its four key Sub-Funds, have been authorized for offering to the public in Hong Kong since 16 June 2021. The Fund’s investment strategy builds on Ping An’s track record of more than 20 years of successful investment in China equity and fixed income markets. It uses Ping An’s offshore investment arm PAAMC HK’s systematic, quantitative and scientific investment methodologies to offer investors a wide range of investment opportunities in China with flexibility and efficiency.

Each of the four Sub-Funds managed by PAAMC HK has a unique investment objective and strategy:

  • China A-Shares AI Multi-Factor Fund

This Sub-Fund employs multi-factor models to construct a well-diversified equity portfolio. It uses advanced artificial intelligence (AI) techniques for stock selection and portfolio optimization. It aims to achieve stable excess returns above the benchmark China Securities Index (CSI) 300 Total Return Index. In addition to applying common factors in the market, Ping An’s AI quantitative researchers have developed proprietary factors to enhance its performance and to reduce correlations with other quantitative funds.

  • China Green Bond Fund

This Sub-Fund mainly invests in China and emerging markets green bonds that are aligned with international standards. This Sub-Fund helps to promote green financing and to advance environmentally friendly investments and social awareness in China and other emerging countries. Bolstered by strong domestic economic recovery and policy support, China green bonds not only help investors capture China’s green opportunities, but also mitigate risk due to its low correlations to other major asset classes.

  • China High-Yield Private Strategy Bond Fund

This Sub-Fund aims to achieve absolute return from investment income and long-term capital appreciation, primarily investing in high-yield corporate bonds and debt securities. It may also invest in debt securities issued by sovereign, government agencies and/or companies having main operations in mainland China.

  • Emerging Market Income Fund

This Sub-Fund is designed to achieve absolute return from income and long-term capital appreciation by investing at least 60% of its net assets in debt securities issued by sovereign, government agencies and/or companies having main operations in emerging market countries.

Mr. Hoi Tung, Chairman and CEO of Ping An Overseas Holdings, said, “We are delighted to introduce these new funds to the Hong Kong market. Leveraging the strength of Ping An’s investment expertise in China, these funds can help Hong Kong investors capitalize on the diverse investment opportunities of China’s growth.”

Mr. Chi Kit Chai, Head of Capital Markets and Chief Investment Officer, PAAMC HK, said, “We are very excited to further broaden our fund offering to Hong Kong investors. Ping An is one of the largest financial companies in the world with strong presence in China. We continue to see strong investor demand for Chinese assets given a confluence of factors, such as yield pick-up, green opportunities and diversification benefits.”


Ping An Ranked the World’s Most Valuable Insurance Brand For Fifth Year in a Row


Ping An Insurance (Group) Company of China, Ltd. (hereafter “Ping An” or the “Group”, HKEx:2318; SSE:601318) announced that Ping An is the world’s most valuable insurance brand, with a brand value of USD44.8 billion, in the Insurance 100 2021 Ranking by leading brand valuation consultancy Brand Finance. Ping An has retained the top spot as the world’s most valuable insurance brand for the fifth year in a row.

Brand Finance is the world’s leading independent brand valuation consultancy. It evaluates thousands of the world’s biggest brands every year. The Insurance 100 2021 ranking evaluates aspects of the brands’ industry performance, brand equity, and contribution to business performance. Brand Finance feeds these factors into the Brand Strength Index (BSI) and quantifies the brand values. This year, Brand Finance also assessed the impact of the COVID-19 outbreak on enterprise value, estimating the likely impact on brand value for each sector.

Brand Finance said, “As predicted, insurance brands have taken a hit this year as they negotiate the fallout from the pandemic … They have, however, fared better than our initial predictions at the outbreak of last year, demonstrating the resilience of the world’s top insurance brands. Ping An has already begun to show signs of a strong recovery as parts of the world begin to remerge from the pandemic, and therefore, if this trend continues, Ping An should see a solid increase in brand value in the coming year.”

Ping An continued to strengthen its technological capabilities and provide high quality products and services to clients amid the COVID-19 pandemic. In the first quarter of 2021, Ping An achieved steady business results. The Group achieved operating profit attributable to shareholders of the parent company of RMB39,120 million, up 8.9% year-on-year. In addition, the Group promoted annuity products, improved its protection product portfolio by developing new “product + service” packages for healthy business development. New business value of the life and health insurance business rose by 15.4% year-on-year to RMB18,980 million. Operating profit rose steadily by 4.2% year-on-year to RMB25,580 millionPing An’s retail customers also continued to increase. By the end of March, Ping An’s retail customers grew 1.0% in the year-to-date to more than 220 million, including 84.57 million, or 38.3%, who hold multiple contracts with different Group subsidiaries.

Ping An said: “While pursuing steady progress by continuously advancing our ‘finance + technology’ and the ‘finance + ecosystem’ strategies, Ping An adheres to the philosophy of ‘expertise makes life simple, technology makes financial services heartwarming, and healthcare makes life better’. In the future, Ping An will seize the development opportunities of fintech and healthtech, support the development of smart cities, fulfill social responsibilities and protect society and people’s livelihoods.”

In addition to Ping An, Chinese insurance brands in general have a significant presence in the Brand Finance Insurance 100 2021 ranking. A total of 12 Chinese insurers are featured, with Ping An, China Life, AIA, CPIC and PICC in the top 10. The cumulative brand value of the 12 Chinese insurance brands accounts for 30% of the total brand value of Insurance 100 2021.