Securities house of the year: Guotai Junan International

Asia Risk Awards 2021

Guotai Junan International’s headquarters in Hong Kong

The world has been in tumult and uncertainty since the start of last year. Against such a backdrop, a sound approach to risk management and strong compliance controls are what make Guotai Junan International the winner of this year’s securities house category.

“Risk management is a key part of how we manage the business. We strike a tremendous balance between revenue growth and risk management. Just look at our earnings from a risk-adjusted perspective,” says Jason Yan, associate director for investor relations at Guotai Junan International.

The Hong Kong subsidiary of the mainland Chinese securities company, the firm saw growth of around 40% in stock returns in 2021, according to Yan.

A key focus of the firm is credit risk, particularly in terms of collateral and diversifying the types of collateral at play.

“We have a sound risk management framework to control credit risk and the quality of collateral in our portfolios,” says Henry Yu, the Hong Kong-based managing director and head of financial products at Guotai Junan International.

Guotai Junan International also offers solutions to clients to manage their risks as well as investment on the sales side by pursuing in-house financial products and solutions. The financial product team provides a significant portion of the entire brokerage product flow for its high-quality wealth management clients.

The key thing about a successful structured product business is pricing. Our pricing model is robust and proven in various situations

Henry Yu, Guotai Junan International

“We try to recycle risks internally before running and hedging them in the market. The key thing about a successful structured product business is pricing. Our pricing model is robust and proven in various situations,” says Yu.

This allows Guotai Junan International to provide in-house investment products – something that not all its competitors are able to do.

“[Many competitors] use third-party providers for products and solutions, so there is not enough room for providing solutions to their clients,” adds Yu.

Guotai Junan International’s prevailing strategy is not to promote the most cutting-edge products out there, which could be done for fame and novelty value, but to put out more rank-and-file products that most investors want and can understand.

“What we provide are assets with high liquidity and large-cap names for our clients when it comes to their investment strategies. We are not out to sell the most complex products to our clients,” says Yan.

Guotai Junan International only offers products with greater than an ordinary market risk to professional investors. All clients – both retail and institutional – receive a thorough risk vetting to make sure they are eligible to invest in such products.

“We have an internal grading [system] on their trading experience and expertise, assets and [investor] profiles for all of them to determine which products are suitable for every single client. It is very important for us in [the] wealth management business to adhere to all regulations,” says Yu.

Global standards

Managing risk is often inseparable from the related threads of regulatory compliance and corporate governance.

Yu stresses that the internal investments made in recruitment and training mean the firm’s compliance and risk management team is now among the most capable relative to its mainland Chinese competitors and on par with many international firms. Standard & Poor’s currently gives Guotai Junan International a credit rating of BBB+ – above that of many of its Asian competitors, and similar to top-tier global financial institutional such as Goldman Sachs and Morgan Stanley.

Guotai Junan International has also invested significant resources in improving its client onboarding process, with a particular focus on know-your-customer (KYC) standards – crucial these days for any securities company that wants to operate in the international arena.

Yu says that Guotai Junan International takes a very cautious approach to which clients to onboard, which helps it stay on top of constantly shifting KYC and anti-money laundering requirements.

One client that is satisfied with Guotai Junan’s service is the Grand Sequoia Global Fund, which uses Guotai to trade US and Hong Kong equities, as well as mainland A-shares via the Shanghai-Hong Kong Connect portal.

“Guotai provides a very prompt response to our needs, including trading, research and even daily work,” says Liu Shan from Grand Sequoia. He adds the firm “has very strong research teams in terms of A-shares and H-shares: they are a very [well]-established securities house from China, [and] they understand China equities well. When we have any research needs, they can mostly fulfil them. This is very important to us as an investor”.

Shan adds: “For equities in other markets, such as US equities, or options, or even other investment ideas that I have, even though they may not be able to provide those products or services at the moment, they would be very happy to help us find out how to realise those investment ideas or they would try their best to provide those services to us. Their service is very agile.”

Comparing Guotai with other mainland Chinese securities houses, Shan says the firm is a leader, touting its relatively long history in Chinese markets: “For Hong Kong equities, they have a lot of local Hong Kong staff, so they are very familiar with the markets. Getting familiar with markets is very important for equities investment because as an investor, you want to choose a securities house with a strong research capacity and resources.”

“When I choose a securities house, I want to choose an established, safe one, and one that is fully compliant, and understands the market and its regulations, so that I don’t need to worry too much or bear too many risks.”