China Analysts’ Cut-Throat Fight for $1 Million PaycheckBloomberg News
As global firms fret over MiFID, New Fortune poll grips China
2017 voting closed on Thursday; winners take stage in November
It’s been a hectic month for Tang Yue and his team of fixed-income researchers at Industrial Securities Co. in Shanghai.
The analysts have been clocking 15-hour days since the start of September, toiling until 2 a.m. some nights and working through most of their weekends. They’ve visited more than 100 clients.
Why the frenetic pace? With Chinese markets trading steadier than usual, it’s not because investors are clamoring for insight on what to buy or sell. No, this is all about winning client votes -- votes that could have a huge bearing on the paychecks and career prospects of Tang and more than 1,000 other analysts across China’s burgeoning brokerage industry.
Welcome to the New Fortune research competition, the most important event of the year for sell-side analysts in China.
The contest, hosted by a state-run magazine of the same name, pits researchers against their peers in more than 30 categories from fixed income to banks and autos. Hundreds of money managers vote to determine the winners, and analysts go to extreme lengths to earn a top ranking. Think of it as China’s version of the Institutional Investor research poll, on steroids.
“The competition is cut-throat,” said Tang, a member of the No. 2 macro-economy team and No. 5 fixed-income team in last year’s rankings.
What sets New Fortune apart is its outsize influence on the industry. Compensation levels at many Chinese brokerages are tied directly to the rankings, and the impact of winning a top spot can be massive. While run-of-the-mill analysts with five years of experience earn the equivalent of about $75,000 a year in China, someone with a New Fortune ranking can take home $1 million or more.
In many ways, the contest’s intensity reflects China’s resilience to the headwinds buffeting the global securities industry. While shrinking trading fees and Europe’s looming MiFID II regulatory overhaul have prompted many international investment banks to cut analyst jobs, China’s brokerages are flush with cash and expanding their research divisions. As more and more competitors enter the fray, a New Fortune ranking has become crucial for those who want to stand out.
For analysts with star power, it’s a good time to be in China. Much of the nation’s investment industry has been untouched by MiFID II rules requiring the separation of research and transaction fees, meaning analysts will continue to play a big role in luring trading commissions.
Chinese brokerages, meanwhile, are prepared to spend on talent. The industry reported combined earnings of about $18 billion in 2016 and has raised $33 billion of capital over the past three years. From the end of 2011 through December, domestic brokerages increased their analyst headcount by 18 percent, according to the Securities Association of China. That compares with a 12 percent drop in research jobs at global investment banks tracked by McKinsey & Co. from 2011 through June 2016.
The average Chinese research analyst makes the equivalent of $75,000 to $90,000 a year, including bonus, said Bai Rui, a partner at financial consulting firm Beijing Rayways Consulting Co. Those with New Fortune rankings earn anywhere from $150,000 to $1.5 million, depending on their employer and their industry focus, according to WitLink Executive Search, a Chinese headhunting firm that specializes in the financial industry. New Fortune announces a top-five ranking for some research categories, and a top-three for others.
A million-dollar paycheck might not turn heads on Wall Street, but it’s a tidy sum in China, where the financial industry is still dominated by government-owned institutions with a history of conservatism on pay. In 2015, senior managers at the country’s five largest banks had their total compensation capped at about $96,000, people with knowledge of the matter said at the time.
“Topping the New Fortune list leads to a sea change in careers and compensation,” said May Zhao, a Hong Kong-based analyst at Zhongtai Financial International Ltd. who doesn’t take part in the contest. “Sometimes their pay can go up by tens of times.”
For participants in this year’s New Fortune competition, the past few weeks have been the busiest of 2017. Like Tang, most contestants have embarked on grueling roadshows in the run-up to the vote, doing the rounds from Shanghai to Beijing to Shenzhen.
A majority of the visits are hum-drum affairs: 30-minute meetings where analysts present their latest research reports, tout their expertise and ask politely for their client’s consideration in the New Fortune contest (this year’s voting closed on Thursday).
But some analysts have been known to get more creative. In one of the more memorable marketing stunts from last year’s competition, Industrial Securities produced a four-minute film to promote one of its technology research teams. The tongue-in-cheek video, made to look like a daytime soap opera, told the story of a stock picker whose tanking portfolio left him in hot water with his boss, a young female hedge fund manager. It was only after he started following the advice of analysts at Industrial Securities that his investments rallied and he won back her confidence. The video, titled “My Overbearing Goddess,” has been viewed 48,000 times online.
Critics of the New Fortune competition worry that in some cases, aggressive marketing tactics can veer into the realm of bribery. Analysts routinely pay for buy-side voters’ meals and hand out “red packets” containing cash or gift cards, according to industry participants. While these tend to be token amounts of around 200 yuan ($30) each, rumors of even bigger handouts spurred New Fortune to issue a sharp reminder this year that bribes are forbidden. Anyone caught breaking the rules will be banned from the competition and their firms will be stripped of all awards, the magazine said.
“It’s our duty to maintain an equal, fair, and transparent competition,” New Fortune said in an emailed response to questions from Bloomberg News. “We also encourage relevant parties to resist any misconduct and report such cases.”
Another worry is that the competition pushes analysts to focus more on self-promotion than market analysis. It’s an assessment that resonates with Tang, who spends about two thirds of his time on marketing and the remainder on research during New Fortune season (it’s vice versa after the contest ends).
“There’s always a dark side along with the bright side,” he said. “Analysts have spent too much time currying favor with clients, so they deviated from the mandate of doing research.”
Despite its shortcomings, Tang says many market participants view the competition in a positive light because it encourages analysts to up their game. Allen Kuo, head of secondary-market investments at Gopher Asset Management in Shanghai, says his firm evaluates New Fortune contestants on their year-round performance, including how often they visit, their responsiveness to inquiries and the usefulness of their contacts. Last-minute glad-handing before the vote doesn’t work, he said.
Winners of this year’s competition -- which includes almost 1,400 analysts from 44 institutions -- will be crowned at the New Fortune gala in November. The 2016 ceremony, at the five-star Intercontinental Hotel in Shenzhen, looked like an Oscars for finance geeks, complete with red velvet ropes, trophies and acceptance speeches.
For Hao Hong, chief strategist at Bocom International Holdings Co. in Hong Kong, the best way to analyze the New Fortune rankings is to look for researchers who win the top spots season after season. While a single year’s competition can be skewed by any number of factors -- from a big firm’s marketing push to a lucky string of stock picks -- there are only a handful of analysts with the diligence and acumen to earn the highest rankings consistently, said Hong, who doesn’t participate in the poll.
“Those are the really good ones,” he said.
— With assistance by Jun Luo, Gary Gao, and Helen Sun