Wealth management's "picky eating" of non-standard assets: high returns cannot conceal concerns over excessive proportions

Li Yunqi, China Securities Journal

Recently, several wealth management companies have published their 2025 annual reports. The China Securities Journal found that many wealth management products heavily invest in non-standardized debt assets. Urban investment companies and internet loan companies are the main financing clients. Experts believe that the core reason wealth management products favor non-standard assets is their unique advantages of “high returns, low volatility, and easy matching.” However, the “Administrative Measures for the Management of Commercial Bank Wealth Management Subsidiaries,” issued on December 2, 2018, stipulates that the balance of all wealth management products invested in non-standard debt assets must not exceed 35% of the net assets of the products at any time. Some products exceed regulatory limits, hiding multiple risks.

Heavy Investment in Non-Standard Assets in Wealth Management Products

Recently, many wealth management companies disclosed their 2025 annual reports. Some products favor non-standard assets, with the balance invested in non-standard assets accounting for 40%-50% of total assets at the end of the period.

For example, a fixed-income 386-day wealth management product from a city commercial bank’s wealth management company, after thorough analysis, shows that non-standard debt assets account for 43.09% of total assets at the end of the period. Looking at the top ten assets by investment at the end of the period, the trust loan issued by a trust company to a city investment company in Zhejiang Province is the largest investment, with a balance accounting for 43.21% of the product’s net asset value.

Similarly, a closed-end fixed-income wealth management product from a joint-stock bank’s wealth management company also shows similar characteristics. As of the end of the fourth quarter of 2025, the top four holdings of this product are trust loans issued by a trust company to four city investment companies, with non-standard assets accounting for 43.96% of the total assets.

In addition to disclosures in periodic reports, some wealth management products also disclose the proportion of investments in non-standard debt assets in change reports. A fixed-income closed-end net value-based wealth management product from a state-owned bank’s wealth management subsidiary recently announced that it added a trust loan, with the financing client being a city investment company in Zhejiang Province, accounting for 48.45% of the new assets in the portfolio.

According to the original “Notice on Regulating the Investment Operations of Commercial Bank Wealth Management Business” issued by the China Banking Regulatory Commission, non-standard assets refer to debt assets that are not traded on interbank markets or stock exchanges, including but not limited to credit assets, trust loans, entrusted debt, bills of exchange, letters of credit, accounts receivable, various receivables rights, and equity financing with repurchase clauses.

Data shows that the main non-standard assets heavily invested in by wealth management products include trust loans and non-standard assets underlying internet loans, mainly involving city investment companies as borrowers. Additionally, interbank borrowings, stock pledge repurchase agreements, and asset income rights also frequently appear in investment lists.

Characteristics of High Returns and Low Volatility

It is understood that many wealth management products heavily invest in non-standard assets mainly because of their “high returns and low volatility” features, and these assets can also match the product’s maturity.

Due to the credit and liquidity risks involved, non-standard assets often offer attractive yields. For example, a trust loan to a city investment company from a large state-owned bank’s wealth management product has an annual yield of 4%. Data disclosed by the wealth management company shows that non-standard assets based on internet loans have lower annual yields of 2%-3%. Some trust loans to lower-rated city investment companies yield between 5% and 8%, significantly outperforming standardized bonds.

Zhou Yuanfan, Chief Economist at Anrong Credit Rating, said that amid the continued decline in bond market yields, non-standard assets generally carry higher risk premiums due to lower information disclosure requirements and poor liquidity, resulting in yields that are significantly higher than comparable standardized bonds. Allocating non-standard assets in wealth management products can boost overall portfolio returns, which is crucial for some bank clients seeking steady and higher yields.

Furthermore, investing in non-standard assets can help smooth net value fluctuations. An industry insider involved in valuation at a wealth management company told reporters that the current valuation methods for non-standard assets are mainly amortized cost and discounted cash flow, with amortized cost being the primary method, which results in less valuation fluctuation.

Zeng Gang, Deputy Director of the National Financial and Development Laboratory, said that standardized bonds are valued using market value, which can cause more noticeable net value fluctuations. Non-standard assets are generally valued using amortized cost, leading to smoother net value curves, reducing redemption pressure and maintaining stability, making them attractive to investors with lower risk appetite.

Additionally, non-standard assets are effective tools for asset-liability management in wealth management products. Zhou Yuanfan believes that unlike fixed-term standardized bonds, non-standard assets often have “tailored” flexibility, with financing terms that can be precisely designed based on the product’s fundraising and liability periods. This allows managers to more efficiently manage assets and liabilities.

Multiple Risks Cannot Be Ignored

In fact, regulators have set limits on the proportion of non-standard assets in wealth management products. The “Administrative Measures for the Management of Commercial Bank Wealth Management Subsidiaries” stipulate that the total balance of non-standard debt assets invested by bank wealth management subsidiaries must not exceed 35% of the net assets of all their wealth management products at any time. The high proportion of some products’ investments in non-standard assets poses compliance risks.

The credit and liquidity risks of non-standard assets are also significant. Zhou Yuanfan pointed out that non-standard assets lack active secondary markets and are usually held to maturity. If a large number of redemptions occur simultaneously, managers may find it difficult to liquidate assets quickly, potentially triggering liquidity crises.

The credit risk of non-standard assets is also high. An industry insider explained that credit risk mainly manifests as selective default by issuers. Since non-standard debt has a narrower audience and less impact, some issuers may prioritize repayment of standardized bonds when facing funding difficulties. Zeng Gang also noted that the credit ratings of issuers of non-standard debt are generally low, and when macroeconomic conditions tighten and debt repayment capacity declines, the risk of default can directly impact product net value and cause chain reactions. Moreover, the opaque valuation and insufficient information disclosure of non-standard assets make it difficult for investors to accurately assess underlying risks, which over time can erode market trust and harm the healthy development of the wealth management market.

The industry insider also told reporters that some wealth management companies currently invest in non-standard assets based on internet loans as underlying assets, but they lack deep understanding of these assets, often relying on the belief that “big firms won’t default.” For such complex structures, it is difficult for wealth management companies to conduct thorough due diligence.

Zeng Gang suggested multiple measures to reduce risks associated with high investment in non-standard assets: First, strengthen transparent supervision by requiring managers to disclose detailed information about underlying borrowers, financing purposes, and collateral, reducing structural avoidance and enabling regulators to “see and control.” Second, strictly enforce proportion limits, increase on-site inspections, and implement differentiated regulatory measures for non-compliant institutions to create effective compliance constraints, avoiding “rules on paper and lax enforcement.” Third, promote the standardization of non-standard assets by encouraging their transformation into standardized assets through securitization (ABS) and other methods, improving liquidity and pricing transparency, and fundamentally optimizing asset structures. Fourth, establish liquidity stress testing systems, requiring managers to simulate extreme redemption scenarios regularly, pre-position liquidity reserves and contingency plans, and move risk prevention upstream to effectively protect investors’ rights and interests.