Wealth Management "Picky Eating" in Non-Standard Assets: High Yields Cannot Hide Worries About Proportions "Exceeding Standards"

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Recently, several wealth management companies have published their 2025 annual reports for their products. Chinese securities reporters found that many wealth management products heavily invest in non-standardized debt assets. City investment companies and internet loan companies are the main financing clients. Experts believe that the core reason why wealth management products favor non-standard assets is their unique advantages of “high returns, low volatility, and easy matching.” However, the “Measures for the Administration of Wealth Management Subsidiaries of Commercial Banks,” issued on December 2, 2018, stipulate 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.

Wealth Management Products Concentrate on Non-Standard Assets

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

For example, a fixed-income 386-day wealth management product from a city commercial bank’s wealth management company had a non-standard debt asset ratio of 43.09% after thorough analysis 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 was the most invested asset, 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 were 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 their change reports. A fixed-income closed-end net value wealth management product under a state-owned bank’s wealth management company 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 issued by the China Banking Regulatory Commission regarding the regulation of commercial bank wealth management investment operations, non-standard assets refer to debt assets not traded on interbank or securities exchange markets, including but not limited to credit assets, trust loans, entrusted debt, acceptance bills, letters of credit, accounts receivable, various receivables rights, and equity financing with repurchase clauses.

Statistics show that the main non-standard assets heavily invested in by wealth management products include trust loans and non-standard assets based on internet loans, with trust loans mainly issued to city investment companies across various regions. Additionally, interbank borrowings, stock pledge repurchase agreements, and asset income rights frequently appear on investment lists.

High Returns and Low Volatility

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

Due to certain credit and liquidity risks, non-standard assets often offer attractive yields. For example, a trust loan issued to a city investment company by a 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 5%-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 wealth management clients seeking steady and higher yields.

Additionally, allocating non-standard assets can help smooth net value fluctuations. An individual 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 Development Laboratory, said that standardized bonds are valued using market value, which can cause more noticeable net value fluctuations. Non-standard assets generally use amortized cost valuation, leading to smoother net value curves, helping to reduce redemption pressure and maintain stability, making them attractive to investors with lower risk appetite.

Furthermore, 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 perform more efficient asset-liability management.

Multiple Risks Cannot Be Ignored

In fact, regulatory authorities have set limits on the proportion of non-standard assets in wealth management products. The “Measures for the Administration of Wealth Management Subsidiaries of Commercial Banks” stipulate that the total balance of non-standard debt assets invested by bank wealth management companies must not exceed 35% of the net assets of the products at any time. The high proportion of non-standard assets in some products poses certain compliance risks.

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

The credit risk of non-standard assets is also high. An industry insider told reporters that credit risk mainly manifests as selective default by issuers. Since non-standard debt assets have a narrower audience and less impact, some issuers prioritize repayment of standardized bonds when facing financial difficulties. Zeng Gang also noted that the credit ratings of issuers of non-standard debt are often low, and when macroeconomic conditions tighten and debt repayment capacity declines, the risk of default can directly impact product net value and cause chain effects. Moreover, non-standard assets are often opaque in valuation and lack sufficient information disclosure, making it difficult for investors to accurately assess underlying risks. Over time, this can erode market trust and harm the healthy development of the wealth management market.

The same industry insider also mentioned 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 and often rely on the belief that “big companies won’t default.” For such complex structures, it is difficult for wealth management companies to conduct thorough research.

Zeng Gang suggested multiple measures to reduce risks associated with high investment proportions in non-standard assets: first, strengthen transparent supervision by requiring managers to disclose detailed information about underlying borrowers, financing purposes, and collateral, to limit structural avoidance and enable regulators to “see and control” clearly; second, strictly enforce proportion limits, increase on-site inspections, and implement differentiated regulatory measures for non-compliant institutions to create effective compliance constraints; third, promote standardization of non-standard assets through securitization (ABS) and other methods to improve liquidity and transparency, fundamentally improving asset structure; 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 protect investors’ rights and interests.