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Western XX FMC Business Plan(2004-2007). to be further discussed (Confidential). Content. 1 、Profile of Western XX Asset Management Co.,Ltd. 2 、Organizational Structure

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slide1

Western XX FMC

Business Plan(2004-2007)

to be further discussed

(Confidential)

slide2

Content

1、Profile of Western XX Asset Management Co.,Ltd.

2、Organizational Structure

3、Business Development Strategies

4、Roadmap

5、Assumptions and Forecast

6、Sales Breakdown in 2005

registered capital and share structure
Registered Capital and Share Structure

Registered Capital:

RMB 100 million

Registered Place:

Pudong District, Shanghai, China

Proposed Share Structure:

Western Securities Co., Ltd. RMB 40 million

Other foreign sponsor RMB 33 million

Shaanxi Investment Group Co.,Ltd. RMB 27 million

business scope
Business Scope
  • Fund management and investment advisory business in China as permitted by the applicable law. (incl. promotion, sale,issuance and management of investment funds)

Other asset management business permitted by the applicable law.

vision philosophy and strategy
Vision, Philosophy and Strategy

Vision

One of the leaders in the great China wealth management

Philoshophy

Investors‘ benefits are everything

Strategy

Brand, Service and Product all in one

business goal
Business Goal
  • Grow the JV into one of the top 5 FMCs in China, in the following three categories:
    • Profitability
    • Fund Performance
    • Total AUM
    • Professionalism
fmc s organization chart at the beginning
FMC‘s Organization Chart (at the beginning)

BOD

Chairman(1)

CEO(1)

Head of

Compliance(1)

CMO(1)

CIO(1)

CEO/COO(1)

Sales&

Customer

Service

(5)

Marketing

&Product

development

(3)

Auditing&

Compliance

(2)

Fund

Account

-ing

&TA

(3)

Trader

(2)

Fund

Manager

(2)

IT

(2)

Admin

&HR

(2)

R&D

(5)

32 persons in the 1st year(proposed)

fmc s organizational chart in 3 years
FMC‘s Organizational Chart (in 3 years )

CEO

Head of

Compliance

CMO

CIO

COO

Fund

Sales

Dept.

Compliance

office

TA

Marketing

Dept.

Fund

dealing

Dept.

Customer

Service

Dept.

IT

Dept.

Fund

Manage

-ment

Dept.

HR&

Admin.

Dept.

R&D

Dept.

Info.

disclosure

Market

-ing &

Product

develop

-ment

Fund

Account-

ing

OA

Auditing

&Supervis

-ing

System

maintain

-ence

Strategy

research

Industry

&

Company

research

Central

dealing

room

Finance

engineer

-ing

Call

center

Agency sale

Direct

sale

structure of governance
Structure of Governance

The shareholders’

meeting

Board of

supervisors

Qualification examination and compensation

committee

Board of directors

The compliance

committee

CEO

Head of Compliance

structure of business operation
Structure of Business Operation

CEO

Head of Compliance

Risk control committee

Investment decision committee

Fund appraisal group

CMO

CIO

COO

slide14
Distribution

Channels

Clients base

Local market

acknowledgement

Adding long-term value

22 branches, strategic cooperation with ICBC,

CCB etc.

700,000 individual clients, main institutional

clients exceed 400

Excellent performance record, good reputation ,

Strong government support, Opportunities from

the development of western China

Professionalism

International

experience

Product

development

International standard in FM. & research

Organizational Know How;

International management team

Fund product innovation& importation

slide15

Outsourcing

Market Segmentation

Research and Development

Value-added

business

Product Design

Fund Transaction/ Investment Management

Promotion/Fund Distribution

Risk Control/ Performance evaluation

Customer Service

HR/ Administration

Non value- added

business

TA/ Fund accounting

Compliance

IT Maintenance

Internal Audit

Outsourcing to the reliable third-party

market segmentation
Market analysis

Market volume 182 billion units in 2003

Growth rate Aver. annual growth rate 50%

New opportunities QFII,National Security Funds asset allocation

Deregulation in fund issuance procedure

Customer segmentation

Institutional v.s. Individual clients 40%v.s.60%(estimate)

Internal sales package A.M. clients transfer into funds holders

Market Segmentation
customer segmentation
Customer Segmentation

Identifying the needs of domestic customers

    • Institutional clients : Fixed income,low risk,cash flow management
    • Individuals clients : Growth,Small and middle cap,active management

Fee Structure varies according to client base

    • Institutional clients: Low subscription and redemption fee
    • Individuals clients: Varies according to the period of holding
  • Deciding on distribution channels, depending on target groups
    • Institutional clients : Direct sales/custodian bank recommendation
    • Individuals clients : Agency sales via banks, securities houses etc.
product strategy
Present fund products Equity,bond,balance,hybrid,index,

money market,guaranty etc.

Competition products Deposit, fund biding insurance, asset

management, trust, underground fund

etc.

Development plan Meet the needs of main clients group

Product frame Based on capital market environment

Image/Brand

Product Strategy
product frame
Product Frame

Equity Fund

Balance Fund

HighRiskLow

LowReturn High

Bond Fund

Money Market Fund

Guaranty Fund

Fund Type

distrubution
Distribution methods

Direct sales to main institutional clients

Agency sales through agency banks, securities

firms, China Unionpay etc.

E-business through website and call center

Distribution channels

Present channels banks, securities firms,internet etc.

Channels selection 3-4 commercial banks,10 sec. firms

Incentive scheme front-load fee kickbacks

Binding promotion flight tickets,insurance,credit card,lottery etc.

Distrubution
investment management
Investment Strategies

Active / Passive

Benchmark

Error tracking

Performance evaluation/Risk management

Reporting system

Research

Top to down /Bottom up

Investment strategies

Listed companies research

Modeling

Stock-based loan

Investment Management
operational management
IT framework

TA (Self-establishment / The third-party supporting)

Software and hardware selection

Customer service system

Company web

OA

Human resources & General Administration

The number of staff

Core employees

Job description

Training

Corporate finance and administration

Operational management
compliance
Auditing and supervising

Fund and company assets auditing

Behavior supervising

Risk evaluation

Firewall

Emergency event handling scheme

Public relationship

Relationship with CSRC, the exchanges and securities association

Legal affairs, information disclosure, international business

Compliance
initial process in seting up jvfmc
Initial Process in Seting up JVFMC
  • Sign the Joint Venture agreement and the article
  • Set up joint preparatory team
  • Prepare application documents required by CSRC
  • Obtain the approval of establishment
  • Recruitment and training
  • Install the equipment and software of JVFMC’s operation
  • Fund product development and key clients contact
  • Setup of contracts with custodian bank and distributors
  • Promotion
  • Fund issuance
short medium long term target setting

Period

The Number of Fund ,Total AUM

(in billion unit)

The Number of Staff,Location of Branches

Short-term

(1-2 year)

Num of funds: 1-2 Series funds

the first year: 6-8 billion

the second year: 9-15biliion

32-45

Beijing,Shanghai、Guangzhou、Shenzhen,Xi’an

Medium-term

(5 year, top 10)

Num of funds: 7-8 funds

Mutual funds: 30-50 billion

Pension funds: 25 billion

Mandates: 25 billion

60-85

Major cities in China mainland & Hongkong

Long-term

(8-10 year, top 5)

Mutual funds:80-100billion

Pension funds & mandates:60billion

International business:10billion

Other asset management business: 10billion

100-120

Taiwan 、Singapore and other Asian countries

Short-/Medium-/Long Term Target Setting
macroeconomy
Macroeconomy
  • GDP growth rate
  • 7%-8% annually
  • Inflation rate
  • Under 1%
  • Resident Savings
  • 20% growth annually
shareholder concept
Shareholder Concept
  • Share transfer
  • Capital Expansion

67%

Or

Call Option to 49%

Maintain33%

33%

2003 2004 2005 2006 2007

earning distribution concept
Earning Distribution Concept

Share Capital& Resource

Dividends& Service fee

JV-FMC

Dividends& Service fee

Share Capital& Resource

Dividends destribution bases on share stucture

Service fee based on the shareholders‘ contribution to JVFMC under SLA

SLA and the payment method are to be discussed under the real legal enviroment

market share
Market Share

(By the end of 2003)

  • Total Mutual Fund The num. Of FMCs The num. Of Funds
  • 182 billion units 47 112
  • Scenario Growth Rate Market Share
  • (in 3 years)
  • Optimistic Scenario 60% 5%
  • Realistic Scenario 45% 3.5%
  • Pessimistic Scenario 30% 2%
fee rate structure
Fee rate Structure

0.25%

1-1.5%

1% 1% <=3% 0-1%

0.6-0.75% 0.2% 1% <= 1.5% 0-1%

1% 0.2% 1% <= 1.5% 0-1%

0.33% 0.1% * NA NA

* 0.25% sales service fee charged

setup cost
Setup Cost
  • 2004.3-2005.3 12 months
  • Space 1000 M2 (Constructional area)
  • Rent US$0.70/M2 / D (Aver, standard)
  • Decoration 850 yuan /M2 0.85 million(Aver, standard)
  • Computer Center 1 million
  • Furniture/PCs 32 0.80 million
  • Automobile 3 1.2 million
  • IT costs 11 million
  • (TA,OA,hardware,software etc.)
  • Depreciation method straight line
staff cost
Staff Cost
  • 7 employees in establishing period aver. RMB10,000 yuan/m per
  • Operational period
  • Number of employee 32,45,55 in 2003-2007
  • Base salary according to the position
  • Bonus 30%-120% of base salary
  • aver. 40% in BP
  • No compensation for foreign staff by JVFMC
slide38

Operational Cost(2005-2007)

  • Rent 2.1 million /y
  • IT maintenance 1.1 million/y, 10% of IT costs
  • Traveling and meeting 3.2-6.2 million
  • Marketing and Promotion 11-21.5 million
  • Research and development 2.1-3 million
  • Compliance 1.05-1.25 million
  • Consulting 5.175 million /y
  • Administration 0.6-0.84 million
  • Sales tax 5%
  • Income tax 15%
slide44
Asset allocation of Chinese insurance Company

1999

2000

2001

2002

2003

Bank Deposits

926 1235.4 1930.6 3026.2 4549.6

Bonds

678.5 956 795.8 1107.8 1409.9

Funds

14.8 133.5 209 307.8 463.3

Other Assets

984.8 1049 1655.9 2052.3 1958.7

Total Assets

2604.1 3373.9 4591.3 6494.1 8378.5

Direct Sales

Unit: RMB 100 million yuan

ASSUME that funds invested by insurance companies increase by 50 percent annually and 1 percent market share taken by JVFMC; around RMB0.7bn units will be sold to insurance companies

slide45
Potentials from Other Financial Institutions ex Banks
  • Total assets of finance companies are RMB346bn, net assets are RMB32.2bn by the end of Jun. 2002
  • Major finance companies in China :
  • China Electric Power Finance Co., China Petroleum Finance Co., China Petrifaction Finance Co., HuaNeng Finance Co., Zhongwu Finance Co. etc.
  • Trust & Securities Co. owns RMB250bn assets by the end of 2002
  • Including: Western Trust&Investment Co., JinSin Trust Co., Ping An of China Trust Co., Ai Jian Trust Co., Shangdong Trust Co. ect.

ASSUME that 10% of total assets of these institutions are allocated into mutual funds and 1% market share taken by JVFMC; more than RMB0.55bn funds will be sold to these companies

slide46
NaCSSeF/Houese Reserve/Listed Companies
  • Total assets of National Council for Social Security Fund (NaCSSeF) are around RMB124.1bn by the end of 2003 which of 40 percent is permitted to flow into securities market
  • Total assets of National House Reserve are 346.7bn by the end of 2003, and 1.5% of total sum managed by Shaanxi Provincial House Reserve
  • According to the bulletins of China Securities Journal, trust assets of listed companies managed by securities companies exceed RMB 3bn in 2003

ASSUME that around RMB20bn assets of NaCSSeF allocated into mutual funds and 1 percent market share taken by JVFMC; 0.2bn units funds will be sold to NaCSSeF

ASSUME 5% share of Shaanxi Provincial House Reserve taken by JVFMC, that is 0.25bn units

state owned enterpirise groups strategic partners
State-owned Enterpirise Groups (Strategic partners)
  • Shaanxi Provincial Investment Group
  • State-owned investment holding company with a registered capital of RMB3bn; to manage the governmental enterprises, real estate and financial assets more than RMB15bn by the end of 2002
  • HanNan Airlines Group
  • Listed company invested by American Aviation Ltd., and total assets exceeding around RMB20bn; more than sixty thousand employees
  • Shaanxi Provincial Electric Power Co.
  • Fully held byNational Electric Power Co., Ltd; total Assets exceeding RMB 24bn and by the end of 2002; sustained long-term growth and abundant cash
  • China HuaNeng Group, China LuNeng Group, Jiangsu Electric Power Co., Guizhou Electric Power Co., Zhejiang Electric Power Co., China International Traveling Group, Zhong Hai Group … …
non profit organization good relationship
Non-profit Organization (Good relationship )
  • Universities and affiliated companies
  • Xi’an Jiaotong University, Northwestern University, Northwestern Polytechnical University, Xi’an Fanyi University, Chang’an University, Tongji University, Shanhai Financial University, Fudan University, Xijing University, Ouya University, Zhejiang University Tianjin University, Nankai University, Nanjing University etc.
  • Hospitals and affiliated institutions
  • Xi Jing Hospital, Xi’an Dianzi Hospital, Xi’an Wujing Hospital, Eastern Hospital, Huaxi University etc.
  • Charity funds association
  • Yanlin Agriculture Development Funds, Yanlin Industry Development funds, Shaanxi Architecture Industry Fund etc.
slide49

Internal Sales Package

  • ASSUME
  • 100,000 units purchased by each top-level manager
  • 50,000 units purchased by each middle-level manager
  • 10,000 units purchased by each ordinary employee
  • Product package should be well designed for individual investor, and the return should be superior to the market benchmark
  • Employee can purchase JVFMC’s funds at discount front-end fee rate
slide50

Internal Sales Estimation

Unit: RMB Million yuan

fund assets under custody in chinese commercial banks
Open-end Funds Closed-end Funds Total Num.of Branch

ICBC 278.83 206 484.83 17,000

China Agricultural Bank 114.21 230 344.21 4,200

China Construction Bank 125.52 175 300.52 12,000

Bank of China 202.11 60 262.11 7,064

Bank of Communication 152.10 146 298.10

China Everbright Bank 16.45 16.45

China Merchants Bank 40.87 40.87

Shanghai Pudong

Development Bank 25.72 25.72

Fund Assets under Custody in Chinese Commercial Banks

Retail Sales

Total 955.81 817 1772.81 40,264

Unit: RMB 100 million

comprehensive cooperation contracts
Comprehensive Cooperation Contracts
  • Western Securities signed the comprehensive cooperation contracts with ICBC and CCB in 2001; the contracts will be signed once again after 2004 and become effect continually
  • Following banks have been discussing comprehensive cooperation contract with Western Securities:
  • Nationwide Banks: Bank of Communication, HUA XIA Bank, Shanghai Bank, Shanghai Pudong Development Bank
  • Local Commercial Banks: Xi’an Commercial Bank, Baoji Commercial Bank, Xianyang Commercial Bank, Nanjing Commercial Bank, Tianjin Commercial Bank, Guiyang Commercial Bank, Ji Nan Commercial Bank, Yin Chuan Commercial Bank
distribution channels
Distribution Channels
  • ASSUME
  • ICBC,CAB,CCB,COB as JVFMC agency banks,10 securities firms,100branches as agency;
  • Aver. 80,000 units distributed by each branch,total 3.2 billion units distributed through commercial banks;
  • Aver. 3,000,000 units distributed by each branch of agency securities firms,total 0.3 billion units distributed through securities firms ;
  • 5 Direct sales centers in Beijing,Shanghai,Shenzhen,Xi’an,Fuzhou, 0.1billion distributed each center,total 0.5 billion;
  • 0.2 billion units distributed through Call-center,website and other sub-contractors.
slide55

Package Scheme/Saving up Plan

  • Package scheme (for different investors)
  • 80% equity fund, 20% money market fund;
  • 50% equity fund, 50% money market fund
  • 30% equity fund, 30% hybrid fund,40% money market fund
  • 20% hybrid fund, 80% money market fund
  • Saving-up plan
  • 80% initial purchase + 20% saving-up