The Asset Liability Management Approach For Private Wealth Management In China

Along with our country economic development, there are more and more high networth Individuals. Private wealth management for high net worth Individuals graduallybecome the point of growth which the domestic and foreign commercial Banks strive for, aswell as many banks have set up an independent private banking sector. Private wealthmanagement (PWM) provides financial services for high net worth individuals, to achievethe purpose of persevering, creating wealth, etc. This business has been popular for manyyears in Europe and America. Before the subprime crisis, PWM still employed theasset-only approach, which is simple and easily acceptable, but with the arrival of thepost-crisis era, the financial positions of private banking clients are becoming more andmore complex, hence many high net worth individuals are not content to simply keepingthe value of wealth. They start demanding for the finances comprehensive consulting,especially the requiring that the overall return can hedge their existing debt or spending inthe future. Private Banks, as a result, have applied assets/liabilities management (ALM)approach, used for of institutional investors, to PWM. Private banking in our country isbased on bank financial products or trust, so the service is similar and the client base is veryobscure. Besides, asset-only approach is the most popular. However, with the developmentof financial market, this management technology no longer meets the needs of high networth individuals. The primary goal of these people is adding the value of the wealth, notthe preserving the wealth. They hope to gain more from the investment as soon as possible,but the investment advice may make the clients encounter greater risks. Nowadays, Chineseprivate wealth management business increasingly competitive more customized andadvanced technology can certainly make financial institutions to be in the dominateposition, and also to provide its clients with more reasonable asset allocation.This article will mainly study ALM approach for PWM in China, based the evolutionof private wealth management method, and prove the argument that ALM is superior totraditional PWM approach in qualitative and quantitative methods. Then the model forChinese PWM will be proposed and amended according the reality of Chines market. Andwe also will explore the strategy of application ALM in the PWM. This article will be basedon the modern portfolio theory, using the VAR model and a stochastic programming modelof correction, and eventually present the advantage, model and strategy of ALMincorporating the behavioral finance. The meaning of this paper is to expand the thinking ofChina’s private wealth management technology, explore the way of personal wealthmanagement, and improve the competitiveness of the private banking industry. Theinnovation of the article is the amendment to the VAR model aiming at proving the advantage of the ALM and putting forward the portfolio model. Based on the above, wewill describe the course of the PWM in private banking, and analyze the situation ofChinese private bank.In the process of the PWM, the approach is evolutionary with the theory, so we cannotdraw the standard management method. The paper will only propose two models rootedfrom the VAR, which is the first focus. The second focus is the environments and strategiesof the PWM.