What is a Trust Fund?

Trust funds, also called investment funds, are a collective investment method of "benefit sharing and risk sharing". Refers to the form of a contract or a company, by means of issuing fund bonds, to pool the unequal funds of most investors in the community to form a certain scale of trust assets, which are distributed by specialized investment institutions based on the principle of asset portfolios A collective investment trust system in which the income derived from investment is shared by investors in proportion to their capital contribution and bears the corresponding risks.

Trust Fund

Collection investment

Expert management, expert operation

Portfolio investment and risk diversification

The operation mode of trust fund funds is mainly loans, equity investment is small, and there is a continuous shrinking trend. Even in the only equity investment project, the trust company basically does not participate in the specific operation and management of the target company. Various control measures, such as the appointment of directors, the appointment of the chief financial officer, and the amendment of the articles of association, are intended to prevent capital risks.
The method of ending the equity investment project mainly relies on a third party to repurchase equity. The dividend and liquidation of the target company has basically never occurred, and it is impossible to wait for an IPO. This repurchase type equity investment belongs to disguised debt financing. The reason why equity investment rarely occurs, because this method has fatal flaws, that is, in the short term (1-2 years), there is great uncertainty in the future repurchase of third parties, the exit channels are not smooth, and the risks are greater. No longer willing to adopt.

The duration of the trust is short, basically 1-2 years. In fact, there is no shortage of long-term funds for Chinese residents. Savings for retirement, child education, marriage, etc. are considerable, but the main reason for the short trust period is that investors expect to receive income in the short term and have doubts about long-term financial management; trust The company's financial ability and brand have yet to convince investors. Due to the limitation of the number of trust contracts, in order to raise sufficient funds, trust companies have to find corporate institutional clients, and corporate institutional clients' funds are often short-term. Although large institutions such as the Social Security Fund Council of China have long-term funds, they cannot currently purchase trust funds. In addition, loan trusts cannot be developed into long-term wealth management products.

Trust is one of the important contributions of the common law to the world's legal system. It originated from the land-use relationship in the Middle Ages in England, that is, the land owner gave the land to others for possession and use, but agreed on the land profit to the original land owner. After a dispute arises,

According to the organization of the fund, the U.S. industry investment fund is divided into two types of organization, the trust system and the company system, and it is also called contract type and company type. The former is based on the trust legal system, while the latter is based on the corporate legal system. The trust system can meet the flexibility requirements of the parties, and the corporate system can well protect the interests of investors (shareholders). In the United States, industrial investment funds are primarily corporate because "paper companies" are allowed to exist as ad hoc entities. There are also some trust systems, some of which are listed and traded on the stock exchange in the form of beneficiary vouchers and have good liquidity.

The typical representative of trust funds is

In China, the financial product closest to the U.S. industry investment fund is a trust fund developed by a trust company (Note: The term "trust fund" is used to reflect its essence and is unified with foreign appellations. "Trust plan", "trust product" and "trust variety" have the same meaning). Its development is based on the "Trust Law", all of which are in the form of a trust system, which is the biggest difference from the US Industrial Investment Fund. Observing the development of China's trust funds since July 2002, it has made up for the inability of companies to issue

A fund that is not established in the form of a limited company and whose organizational structure allows the proceeds of the fund to be processed. Overseas funds sold in Taiwan can be divided into two systems according to their establishment structure. One is a unit trust fund in the United Kingdom system, which is established in the form of a trust. The other is a mutual fund in the United States system, which is structured like a company with limited liability. Both are managed by professional investment management companies in accordance with the investment guidelines set out when the fund was established, with little difference to investors. Some fund companies call their products "Mutual fund" and some call them "Unit Trust". Basically, the two are equivalent. The difference is mainly its legal basis. Unit Trust Funds Originated

2011 was the most glorious year in China's trust industry. The scale of asset management easily exceeded 4 trillion yuan, making it the third largest industry other than banking and insurance. Behind the rapid development is the obvious rigid payment pressure.

According to data estimates, trust companies will face centralized redemption before the third quarter of 2011, increasing industry risks and possibly even tightening regulations. However, the trust company has taken these situations into consideration in advance and responded that the trust fund will be used to achieve controllable risks. This is a road of innovation. Whether it can solve the imminent redemption problem and whether it can be widely accepted by the market is still in doubt.

Real estate trusts, which account for more than 70% of total collective trust issuances, are the main source of pressure on the trust industry's redemption. Its redemption volume in 2012 was 18 times that in 2010. The most recent redemption peaks are March and June, of which the scale of real estate trust products due in March totaled 15.4 billion yuan, and the amount of redemption due in one month alone was twice the total redemption quota for 2010. More than enough.

Such huge redemption pressure is actually more rooted in a reality. At present, most trusts in the market adopt financing arrangements and invest in a fixed project or a single company.

The specific process is that the trust company signs a fixed income agreement with a project company, invests funds and controls the related warrants, and recovers the funds in batches or one-time recovery due to the specific agreement. This de facto "type of loan" allows redemption risk to be concentrated on one company and a single point in time. Once macro-control is encountered, the industry as a whole is in recession, and the payment risk is multiplied.

The difference between a funded trust product and existing products is that it has abandoned the single-company, fixed-income model in its issuance design. Instead, it allows the trust company to form a pool of funds for active management in order to Different types of mixed assets are invested in different types, and an open plan is used to allow investors to repurchase shares midway.

On the real estate trust, the largest source of payment pressure, the stock of featured funded trust products was about 32.5 billion yuan at the end of 2011, accounting for only about 5% of the real estate trust business balance.

Under the circumstance that financing trusts are limited, the proportion of funded trust products across the industry will increase significantly in 2012. It is optimistic that the full year of 2012 will approach 30% to 40% of the total trust product size. Funded products seem to become The trust company's life-saving straw.

Funded products issued now only reduce the risk of the product itself, and have little effect on trust companies. Because the trust company's redemption pressure is more imminent is the products retained in previous years. If the original plan does not respond to the poor sales and sufficient funds have not been raised, the compensation paid by the company must still be done.

The China Banking Regulatory Commission has long stipulated that different trust plans of the same company cannot accept each other. This makes it impossible to use the newly raised funds to take over the old projects, otherwise it will touch the red line.

Not only is the effect of funded trust products on relieving payment pressures insignificant, but also the degree of market acceptance is worrying. Clients have refused to accept fixed-income, seemingly secured loan real estate trusts, and it is difficult to persuade them to invest in a floating-income product.

The trust of a single project is made into a fund that invests in multiple projects. As a result, the size of a single trust plan will be larger, reaching 1 billion levels. The term has also been extended from about 2 years to about 5 years. This puts forward higher requirements on the ability of trust companies to actively manage. However, most trust companies not only lack experience in running funded products, but also lack talent.

Take the real estate trust as an example. Most trust companies are familiar with how to control warrants and how to control risks. However, few people really know the real estate industry and project prospects because they are used to looking at guarantees, pledges, and projects. The strength of the company behind.

Since the end of 2010, the China Banking Regulatory Commission has stated its position on several occasions, encouraging trust companies to research and establish medium- and long-term private equity fund trust plans, but the market has not responded much.

The overseas funds currently sold in Taiwan can be divided into two systems according to their establishment structure. One is a unit trust fund in the United Kingdom system, which is established in the form of a trust. The other is a mutual fund in the United States system, which is structured like a limited liability company .

Guaranteed risk

The probability of principal loss of capital preservation risk is very low, but the probability of principal loss is not entirely absent, and the trust plan does not promise to maintain capital. When the stock market falls sharply and it is too late to stop the liquidation, it may happen that the net loss breaks through the "buffer", and the principal of the priority client will lose.
Interest Rate Risk

Generally, current domestic interest rates are adjusted once a year, and one-year trust funds generally do not generate interest rate risk. Trust funds with a term of more than 2 years need to see the contract terms of the use of funds. From the perspective of the use of trust funds, the trust funds used for loans generally agree with the borrower that the loan interest rate is adjusted together with the central bank to avoid interest rate risk. The trust funds used for equity investment repurchase methods, depending on their relationship with the investee, The agreement on interest rate changes determines whether interest rate risk can be avoided.
credit risk

The size of the risk determines whether the principal of the investor can be recovered smoothly and whether the expected return can be successfully realized, which is also the risk factor that investors are most concerned about. Evaluate credit risk, first look at the investment situation of the fund utilization project, especially whether the project's cash flow within the trust period can fully bear the obligation to repay principal and interest; second, look at the background and strength of the project company, and whether it has sufficient financial strength When the project can not normally repay the principal and interest, digest it in the company; Third, look at the credit enhancement methods used by the trust funds, such as whether the mortgage (pledge) is good, whether the mortgage (pledge) ratio is safe, and the guarantor's credit rating and financial strength. , Whether there is insurance intervention, whether the special compensation fund is sufficient, the scale of the secondary beneficiary rights among the beneficiary rights, and the commitments, etc .; the fourth is to see the trustworthiness of the trust company that sells the trust products, whether it has a government background, and whether the project operation experience And capital strength.
Generally speaking, infrastructure is better than real estate investment and other project types. Trusts used in large enterprise groups are better than trusts used by general companies. Trusts with sufficient mortgages and guarantees are better than trusts with general credit.
Liquidity risk

Generally, existing trust products can only be transferred in the form of contracts, and there is no established transfer market. The risks are relatively large compared with the liquidity risks of stocks, bonds, funds and other products. However, the trust company has already given sufficient return compensation for this risk when designing trust products.
Common trust fund risks are mainly the above four points. In summary, it can be seen that the liquidity risk and interest rate risk of trust fund risks are uncontrollable, while the principal protection risk and credit risk are manageable, and investors need to pay special attention at this point.