Chapter 1 Industry Overview
Non-Securities Investment Banking (Non-Securities Investment Banking) refers to financial institutions engaged in non-securities financial services. Its main business includes providing financing, mergers and acquisitions, asset restructuring, valuation, consulting and risk management services for enterprises. Different from securities investment banks, non-securities investment banks serve not listed companies, but small and medium-sized enterprises, private enterprises and family enterprises.
Non-equity investment banks provide a wide range of services across multiple sectors, such as energy, real estate, healthcare, consumer goods, technology, and more. Its main business includes the following aspects:
- Financing services: including private equity financing, debt financing, project financing, etc.
- Mergers and reorganizations: including corporate mergers and acquisitions, asset acquisitions, asset reorganizations, business spin-offs, mergers, etc.
- Financial consulting: including enterprise valuation, financial consulting, capital structure planning, etc.
- Risk management: including financial risk management, risk assessment, etc.
Non-securities investment banks usually cooperate with enterprises for a long time, establish a good relationship, and provide customers with a full range of financial services. In addition, non-securities investment banks also provide services for private asset management, family wealth management, venture capital and private equity.
Compared with securities investment banks, non-securities investment banks mainly differ in their service targets and business scope. Securities investment banks serve listed companies and the public market, and are mainly engaged in securities businesses such as stocks, bonds, and derivatives; non-securities investment banks mainly serve small and medium-sized enterprises and private companies, and are engaged in non-securities financing and mergers and acquisitions.
The services provided by non-securities investment banks are relatively complex and require various professional knowledge and skills, such as financial analysis, corporate valuation, asset restructuring, and business negotiations. Therefore, practitioners of non-securities investment banks often need to have higher professional quality and experience.
The market share of non-securities investment banks is gradually increasing, especially in the fields of private equity and SME financing, which have unique advantages. With the development and growth of small and medium-sized enterprises and private enterprises, the market prospects of non-securities investment banks are also becoming more and more broad.
In short, non-securities investment banking is a very important financial service field, which provides diversified financial services for enterprises, promotes the development and expansion of enterprises, and also provides diversified investment opportunities for investors.
Figure Non-bank financial industry industry chain structure
Source: Qianji Investment Bank iFinD
There are many classification methods for non-securities investment banks, and these classification methods are mainly divided according to their business models, service objects, business scope, etc., in order to meet the needs of different customers and market demands.
- According to the service object: The service objects of non-securities investment banks mainly include enterprises, governments and individuals. According to different service objects, non-securities investment banks can be divided into corporate financial institutions, public utility financial institutions, government financial institutions and private banks.
- According to the scope of business: the business scope of non-securities investment banks includes M&A consulting, asset management, private equity investment, financing and restructuring, etc. According to different business scopes, non-securities investment banks can be divided into specialized institutions, comprehensive institutions and hybrid institutions.
- According to the business model: the business model of non-securities investment banks includes independent operation and affiliated operation. Independent non-securities investment banks obtain income mainly by providing consulting services, investment management and financing services. The affiliated non-securities investment banks are established by some large banks or financial institutions, which mainly provide support to the parent company or group companies through asset management and other financial services.
According to data released by the China Investment Banking Association, the revenue of non-brokerage investment banks in China will reach 1.17 trillion yuan in 2020, a year-on-year increase of about 5.6%. Among them, asset management and investment consulting are the main business areas of non-securities investment banks, with revenues of 312.7 billion yuan and 248.8 billion yuan respectively. In the first half of 2021, the revenue scale of China's non-brokerage investment banks reached 977.8 billion yuan, a year-on-year increase of about 16.4%. Among them, asset management and investment consulting are still the main business areas of non-brokerage investment banks, with revenues of 256.5 billion yuan and 213.8 billion yuan respectively. As of the end of 2021, the number of non-brokerage investment banks in China will be 89.
Chapter 2 Business Model and Technology Development
2.1 Business type
Compared with securities investment banks, non-securities investment banks mainly provide customers with diversified financing tools and services through banking channels. The main business of non-securities investment banks includes loan financing, asset securitization, merger and acquisition financing, asset management, international trade financing, etc.
(1) Loan financing: Non-securities investment banks provide various types of financing services, including syndicated loans, factoring financing, trust financing, lease financing, etc., to meet the capital needs of corporate customers.
Figure loan financing business flow chart
Source: Qianji Investment Bank iFinD
(2) Asset securitization: Through asset securitization, non-securities investment banks convert the assets of corporate customers into securities or asset-backed securities for better financing.
Figure asset securitization business flow chart
Source: Qianji Investment Bank iFinD
(3) M&A financing: Non-securities investment banks provide corporate clients with M&A financing services, including financial structure design and financing arrangements.
(4) Asset management: Non-securities investment banks help clients manage and optimize their investment portfolios by providing various asset management services, including fund management, asset custody, investment consulting, etc.
(5) International trade financing: Non-securities investment banks also provide cross-border trade financing services to help corporate customers solve financing and payment problems in cross-border trade, including import and export financing, letters of guarantee, and exchange rate risk management.
2.2 Business model
With the continuous development of non-securities investment banks in my country, their business expansion has expanded to loan financing, asset securitization, merger and acquisition financing, asset management, international trade financing, etc. and other business models.
- Service fee income: Non-securities investment banks charge service fees by providing customers with various financing tools and services. For example, when arranging loans, bond issuance, mergers and acquisitions and other businesses for customers, non-securities investment banks can obtain a certain percentage of handling fees from customers.
- Interest income: Non-securities investment banks can also obtain interest income by issuing loans and other means. For example, when arranging syndicated loans, factoring financing, trust financing and other services for customers, non-securities investment banks can obtain interest income from customers.
- Investment income: non-securities investment banks can also obtain investment income through asset management business. For example, when managing funds, asset custody and other businesses for customers, non-securities investment banks can obtain profits through the investment income they obtain.
- Other business income: non-securities investment banks can also obtain other business income by providing financial consulting, tax planning, legal consulting and other services to customers. For example, non-securities investment banks can obtain certain consulting fees from customers when providing services such as M&A consulting, asset appraisal, and corporate restructuring.
Figure Goldman Sachs Group Revenue Structure
Source: Asset Information Network Qianji Investment Bank Changjiang Securities
Figure Goldman Sachs Group profit structure chart
Source: Asset Information Network Qianji Investment Bank Changjiang Securities
2.3 Technology Development
The technological development of the non-securities investment banking industry has always been the focus of attention. With the development and innovation of financial technology, the non-securities investment banking industry is also constantly introducing and using new technical means and tools to improve service quality and efficiency. The following are some specific measures in terms of technology development in the non-equity investment banking industry:
- Artificial intelligence (AI): The non-securities investment banking industry widely uses artificial intelligence technology in financial analysis, risk assessment, transaction decision-making, customer relationship management, etc. Through natural language processing, machine learning, intelligent algorithms and other technical means, large amounts of data and information can be processed automatically to improve decision-making efficiency and accuracy.
- Blockchain technology: Blockchain technology can provide functions such as distributed ledgers and decentralized transaction settlement, making non-securities investment banks more efficient, secure and transparent in terms of transaction process, compliance supervision, and security. For example, the use of blockchain technology can provide more convenient services in asset transfer and financing.
- Big data analysis: Non-securities investment banks can integrate and analyze various data through big data analysis technology, so as to discover market trends and investment opportunities. At the same time, by analyzing customer behavior and preferences, personalized investment and service recommendations can be provided to improve customer experience.
- Cloud computing technology: Non-securities investment banks can use cloud computing technology to realize data center virtualization, improve data storage and processing capabilities, and reduce operation and maintenance costs. At the same time, cloud computing technology can also provide high availability and flexibility, so that non-securities investment banks can respond to market demand faster.
- Technological finance: Technological finance refers to a new business model that uses technological means to realize financial services. The non-securities investment banking industry can provide customers with more convenient, efficient and high-quality services through technological finance, such as P2P network lending, digital currency, etc.
- Virtual reality (VR) and augmented reality (AR): VR and AR technologies can provide functions such as virtual interaction and real-time visualization. Non-securities investment banks can use these technologies to show customers more vivid, intuitive and specific investment and transaction situations.
- Automation and robotics: Non-sector investment banks can use automation and robotics to reduce manual operations and improve efficiency and accuracy. For example, large amounts of financial data and transaction processes can be processed quickly using automation.
Generally speaking, the technology development direction of the non-securities investment banking industry will become more and more diversified and complex. It is necessary to constantly pay attention to market demand and customer experience to ensure that the application and innovation of technology can truly bring benefits to customers and the industry. actual value. At the same time, the development of technology also needs to fully consider issues such as security and privacy protection to avoid data leakage and other security risks, so as to meet market needs and regulatory requirements.
2.4 Policy Supervision
Industry authorities and management system
The State Securities Regulatory Commission conducts macro-control on the industry. China Banking Association, China Securities Association, China Futures Association, China Asset Management Association, China Interbank Market Dealers Association and other organizations are national industry organizations in this industry.
related policy
Relaxation of foreign shareholding ratio restrictions: In July 2019, the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission jointly issued the "Notice on Further Expanding the Foreign Shareholding Ratio of Banks, Securities, and Fund Management Companies", which clearly relaxed the restrictions on foreign shareholding ratios, including foreign investment. The upper limit of the shareholding ratio in China has been raised from 51% to 100%.
Implementation of the financial opening policy: In November 2019, China issued "Several Measures Concerning Supporting the High-Level Expansion of Opening-up in Pilot Free Trade Zones" to implement more relaxed access rules for financial institutions in the Pilot Free Trade Zone. More convenient cross-border capital flow and foreign exchange management policies encourage more foreign capital to enter the Chinese market.
Strengthening financial supervision: China has continuously strengthened the supervision of the financial industry. In December 2019, the People's Bank of China issued the "Notice on Strengthening the Management of Financial Institutions", which requires strengthening the compliance management of financial institutions and preventing various financial risks.
Promoting technological innovation: The Chinese government supports fintech innovation through a number of policies, for example, supporting the investment banking industry to apply new technologies such as artificial intelligence and blockchain to improve industry efficiency and service levels.
Encouraging capital market reforms: The Chinese government has also been encouraging capital market reforms. In February 2020, the China Securities Regulatory Commission issued the "Opinions on Continuously Promoting the Reform and Development of the Capital Market", proposing a series of reform measures for the capital market, including supporting companies to directly issue stocks and bonds, and speeding up listing reviews. These measures will also benefit Developments in the investment banking industry.
Chapter 3 Industry Valuation, Pricing Mechanism and Global Leading Enterprises
3.1 Industry Development
The non-equity investment banking industry is a relatively young financial services industry, and its development process can be traced back to the 1960s. The main development history of non-securities investment banking industry is as follows:
- Founding period (1960s-1980s): The non-securities investment banking industry originated in the United States, mainly providing financing services for private companies. Non-securities investment banks in this period provided clients with services such as equity financing, bond issuance, mergers and acquisitions, etc., based on the personal experience and reputation of investment bankers, and through means such as interpersonal relationships and negotiation skills.
- Rising period (1980s-1990s): In the 1980s, with the development of the market economy and the gradual opening of the financial market, the non-securities investment banking industry gradually rose. During this period, non-securities investment banks gradually formed professional teams, standardized management and service processes, and began to develop in a diversified direction, such as mergers and acquisitions, equity financing, venture capital and other fields.
- Development and growth period (1990s-2000s): In the 1990s, the non-securities investment banking industry further developed and became an important participant in the international financial market. During this period, non-securities investment banks provided a large amount of financial support and strategic guidance for enterprises through mergers and acquisitions, equity financing, venture capital, etc., and also provided investment opportunities for investors.
- The period of capital marketization (2000s to present): At the beginning of the 21st century, the non-securities investment banking industry gradually developed towards the direction of capital marketization, and began to get involved in the fields of stocks, bonds and futures, becoming an important participant in the capital market. At the same time, with the development and innovation of financial technology, the non-securities investment banking industry is also constantly introducing and using new technical means and tools to improve service quality and efficiency.
The development process of the non-securities investment banking industry can be seen as the process of developing from a single equity financing, merger and reorganization service to a diversified and international direction. At different stages of development, the non-securities investment banking industry is also facing different market environments and challenges, and needs constant adaptation and innovation to meet customer needs and market changes.
3.2 Driving factors
(1) Relaxation of restrictions on foreign shareholding ratio: In July 2019, the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission jointly issued the "Notice on Further Expanding the Foreign Shareholding Ratio of Banks, Securities, and Fund Management Companies", clearly relaxing the restrictions on foreign shareholding ratio. Including raising the upper limit of foreign ownership in China from 51% to 100%.
(2) Implementation of financial opening policy: In November 2019, China issued "Several Measures to Support the High-level Expansion of Opening-up in Pilot Free Trade Zones", implementing more relaxed access rules for financial institutions in Pilot Free Trade Zones , while implementing more convenient cross-border capital flow and foreign exchange management policies to encourage more foreign capital to enter the Chinese market.
(3) Strengthen financial supervision.
China's regulation of the financial industry continues to strengthen. In December 2019, the People's Bank of China issued the "Notice on Strengthening the Management of Financial Institutions", which requires strengthening the compliance management of financial institutions and preventing various financial risks.
(4) Promoting scientific and technological innovation: The Chinese government has adopted a number of policies to support financial technology innovation, for example, supporting the investment banking industry to apply new technologies such as artificial intelligence and blockchain to improve industry efficiency and service levels.
(5) Encouraging capital market reforms: The Chinese government has also been encouraging capital market reforms. In February 2020, the China Securities Regulatory Commission issued the "Opinions on Continuously Promoting the Reform and Development of the Capital Market", proposing a series of reform measures for the capital market, including supporting companies to directly issue stocks and bonds, and speeding up listing reviews. These measures will also benefit Developments in the investment banking industry.
(6) Event-driven
Graph event driven
Source: Qianji Investment Bank iFinD
3.3 Industry Risk Analysis
Table common industry risk factors
Source: Asset Information Network Qianji Investment Bank
Common risks:
- Credit risk: Since the business of non-securities investment banks is often related to debt financing, loans and asset management, credit risk is involved. For example, borrowers may default or fail to make repayments on time, resulting in losses for investment institutions.
- Market risk: The business of non-securities investment banks may be affected by market fluctuations, policy changes, natural disasters and other factors, resulting in a decline in investment income or an increase in losses.
- Operational risk: The business of non-securities investment banks involves many links, such as due diligence, financial analysis, investment decision-making, etc. If there are operational errors or management loopholes in these links, it may lead to investment failure or loss.
- Legal risks: The business of non-securities investment banks involves multiple laws and regulations. If investment institutions do not strictly abide by the relevant regulations, they may face legal risks such as lawsuits and fines.
- Moral hazard: The business of non-securities investment banks involves multiple stakeholders, such as investment institutions, investors, invested companies, etc. If moral anomie occurs during the business process, it may have a negative impact on the reputation of investment institutions .
Figure SWOT analysis
Source: Qianji Investment Bank iFinD
3.4 Comparison between Chinese companies and international companies
Due to different factors such as national conditions and market environment, there are differences between Chinese and foreign non-brokerage investment banks. At the same time, China's non-securities investment banks are in a stage of rapid development and are expected to achieve better development and improvement in the future.
- Market size: The non-securities investment banking market in foreign countries is relatively large, with a mature business model and customer base. In contrast, China's non-brokerage investment banking market is relatively small and still in its early stages of development.
- Market competition: The foreign non-securities investment banking market is more competitive. There are many well-known investment banking companies, and the market share distribution is relatively balanced. In contrast, China's non-brokerage investment banking market has relatively low competition and uneven distribution of market shares.
- Professional capabilities: Foreign non-securities investment banks have relatively mature professional capabilities and can provide various types of services, such as asset management, credit financing, mergers and acquisitions, etc. In contrast, China’s non-brokerage investment banks still have room to improve their professional capabilities.
- Regulatory environment: Foreign non-brokerage investment banks are subject to relatively strict regulatory systems, which have certain control over business risks, which is conducive to the steady development of the market. In contrast, China's non-securities investment banking regulatory environment is relatively loose, and regulatory standards and regulations need to be improved.
- Investor education: Foreign non-brokerage investment banks pay attention to investor education and risk warnings, and respect investors' right to know and independent choice. In contrast, China's non-brokerage investment banks still have certain deficiencies in investor education and risk warnings, which need to be strengthened.
Chapter 4 Future Outlook
The development prospect of China's non-securities investment banking industry is very broad, which is mainly reflected in the following aspects:
- Huge market demand: There are a huge number of small and medium-sized enterprises and private companies in China, and these companies need professional financial services in financing, mergers and acquisitions, and asset restructuring. At the same time, China's capital market is not yet perfect, and many companies are facing problems such as difficult and expensive financing, which provides greater market opportunities for non-securities investment banks.
- High-quality customer resources: There are a large number of small and medium-sized enterprises and private enterprises in China, many of which have good business foundation and potential. Non-securities investment banks can provide these enterprises with professional financial consulting, mergers and acquisitions, asset management and other services to help these enterprises Enterprises achieve rapid growth.
- Constantly improving legal and regulatory environment: With the development of China's economy and the degree of opening up to the outside world, China's financial market supervision has been continuously strengthened. Non-securities investment banks need to follow strict laws and regulations when providing services, so a healthy, transparent and orderly market environment is very important for the development of non-securities investment banks.
- Driven by technological innovation: With the continuous development of technologies such as artificial intelligence, blockchain, and cloud computing, non-securities investment banks can use these technologies to improve business efficiency, reduce costs, and optimize services.
In the future, China's non-securities investment banking industry is expected to present the following development trends:
- Increased industry specialization: As market demand continues to increase, non-securities investment banks will further subdivide and specialize, such as focusing on a certain industry field, a specific type of financing business, etc., to provide more professional and efficient services .
- Technological innovation drives business innovation: non-securities investment banks will gradually use artificial intelligence, big data, blockchain and other technologies to develop new business models and products, and improve service efficiency and quality.
- The degree of internationalization continues to increase: Chinese companies' foreign investment and mergers and acquisitions continue to increase, and non-securities investment banks will actively participate in them to improve their international competitiveness through international cooperation and exchanges.
- Financial supervision is gradually strengthened: China's financial market supervision is becoming stricter, and non-securities investment banks will pay more attention to standardizing their own business behavior, improving compliance awareness and risk control capabilities.
- Win-win cooperation becomes the mainstream: Non-securities investment banks will cooperate with upstream and downstream enterprises in the industrial chain to realize resource sharing, risk sharing, and benefit sharing, and build a mutually beneficial and win-win ecosystem.
In short, China's non-securities investment banking industry is facing many opportunities and challenges. While maintaining the healthy development of the industry, it is necessary to pay attention to social responsibility and corporate culture construction, actively expand the market, improve service quality, and make greater contributions to the development of China's economy. contribute.
Cover Photo by Julien Riedel on Unsplash