Basic Information of Employees of the Company
As at December 31, 2018, the Company had 863 employees, of which 110 or 12.7% were responsible for management and administration, 578 or 67% were business specialists, and 175 or 20.3% professionals. There were 425 or 49.2% of employees holding doctorate or master's degrees, 409 or 47.4% of employees holding a bachelor's degree, 29 or 3.3% of employees having other qualifications.
Financial Summary
As of the end of 2018, the net profit attributable to the parent company was RMB3,401 million, representing an increase of 153.2% year on year. The Company’s AUM hit RMB342,981 million, up 17.0% year on year. Following market movements, the Company maintained steady growth in its project development and commercial real estate businesses. The return on property investments of insurance funds rose by 1.5 pps year on year to 6.8%, indicating improved asset management capabilities.
Risk Management Objectives
Based on the real estate industry's characteristics and the overall requirement of the Group's integrated finance strategy, the Company continues to improve its risk management system, and takes steady steps to build a comprehensive risk management system aligned with the Company's strategies and the nature of businesses. While keeping risks under control, the Company pursues sustainable and healthy development to develop into a leading real estate asset management company in China.
In the changing economic environments at home and abroad with evolving regulations, the Company with diversifying business lines will improve its risk management organizational structure and standardize risk management procedures. With risk quantification tools and risk performance appraisal as main approaches, the Company adopts both qualitative and quantitative risk management methods to identify, assess and price risks, achieve risk-return matching and increase risk-adjusted returns.
Organizational Structure of Risk Management
The Company has developed a clear organizational structure of risk management in accordance with the Company Law of the People's Republic of China, other relevant laws, regulations and regulatory requirements, as well as the Articles of Association of Ping An Real Estate Co., Ltd. and risk governance rules. The Board of Directors is ultimately accountable, the Company’s management is directly responsible, the Company’s Risk Management Department acts as a coordinator, and business and functional departments including the Investment Assessment Department assume their own responsibilities. There are risk management committees under the Board of Directors and the management respectively.
The Board of Directors, as the Company's highest decision-making body, has established a risk management committee to develop the comprehensive risk management organizational structure, determine risk management policies relating to such matters as the overall objective, risk appetite and risk tolerance, and assume ultimate responsibility for the effectiveness of the Company's comprehensive risk management.
The management supervises the effectiveness of the Company's risk management system and performs its comprehensive risk management duties. Under the management there is a risk management committee taking charge of risk management.
As the secretariat and executive body of the risk management committee, the Risk Management Department coordinates risk management as led by the risk management committee.
Comprehensive Risk Management System
The Company constantly optimizes its comprehensive risk management system, risk governance structure, and risk management policies, rules and procedures, which lays a solid foundation for the effective integration of risk management into daily operations, and helps achieve the risk management objective of ensuring asset security, facilitating business development and creating value.
Measures of Risk Management
The Company has established a risk reserve, quasi-regulatory capital and economic capital management system, which fully covers the Company's expected and unexpected risks. The Company has also developed a credit rating system and an independent credit rating team to strictly control credit risks, and prevent credit risks through credit line limits, rating-based access and so on. Through an annual assessment of market and credit risk management capabilities, the Company fully assesses the risk management system, reviews the implementation of all management measures, and identifies and analyzes weak links to improve the risk management system step by step for better risk management.
The Company constantly improves its risk monitoring and reporting mechanism, and identifies, classifies and analyzes risks in a systematic manner through the risk limit and indicator system, so as to ensure timely risk monitoring and management. The Company also improves operational risk monitoring and reporting by implementing KRI and LDC.
Risk Early Warning
The Company develops risk limits, the significant risk reporting mechanism, the administrative measures for significant capital events, the mechanism of handling of critical emergencies, the procedure for risk asset management and disposal, and the rules of managing regulatory information. On this basis, the Company provides effective reminders or early warnings about industry movements, regulatory information or risk events to prevent and resolve risks in a timely manner.
Performance Appraisal
The Company has included risk indicators in the performance appraisal, promoted a performance-linked risk appraisal system, and closely linked compliance with performance appraisal based on "accountability and appraisal at every level", in a bid to achieve full coverage of risk management and lay a solid foundation for effective risk management.
Significant Risk Management - Investment Risk
The Company boasts a professional management team, an advanced system of credit rating, market assessment and financial projection models, a scientific investment decision-making process, a well-established post-investment management mechanism, and a mechanism of risk management before, during and after investment deals.
Risk Management before Investment
The Company's business team is responsible for primary project screening. With extensive experience in projects, the leaders and key members of the business team establish the first line of defense for the Company's investment risk management by formulating and implementing project investment standards and implementing the Company's risk management strategies.
Risk Management during Investment
Investment decision making is central to investment risk management. As the Company's investment decision-maker, the Investment Decision-making Committee makes decisions on investment projects based on the projects' conditions, opinions of the Investment Assessment Department and other functional departments, and the Company's strategies. As secretary to the Investment Decision-making Committee, the Investment Assessment Department is responsible for soliciting opinions of functional departments on proposed projects, assessing the projects independently based on internal and external due diligence results, and overseeing the implementation of investment decisions. The Finance Department has specialists for lending reviews to ensure security.
Risk Management after Investment
The Company's Operation Management Department is responsible for coordination and cooperation with the post-investment team in investment management. The Risk Management Department follows up existing projects, monitors key risk indicators regularly, comprehensively assesses project risks and performance, provides advice on risk management and asset allocation based on specific conditions, and issue the Investment Portfolio Analysis Report quarterly for reference of the management. The audit team carries out special audits of projects and comprehensive reviews of project compliance and implementation of investment decisions, reports identified issues to the management in a timely manner and follow up remediation. Besides, the Market Research Department researches the market where projects are located and issues market risk warnings in a timely manner.
Since 2018, the Company’s Risk Management Department has launched cooperation with the post-investment team, the Finance Department and other departments in regular classification-based impairment management of investments and valuation management of specific assets under IFRS9. Results of the monthly measurement of the Company's asset impairment and valuation are issued to reflect changes in asset risks and risk expectations from the perspective of asset impairment and valuation changes.
Significant Risk Management - Market Risk
In 2018, the Chinese government continued housing market regulation and resolutely curbed soaring housing prices in some cities, asserting that housing is for living in, not for speculation. The housing market was cooled down, with generally stable prices and price falls in some cities subject to tight regulation. Home sales in the following year are likely to maintain a downward trend. The Chinese government's development of a long-term effective mechanism of real estate market regulation, ongoing regional integration and new urbanization are favorable to the real estate industry's long-term development. In such an environment, we will lay more stress on market risk management in our investment.
Stress Tests
During the project estimation, the Company's Investment Assessment Department reviews stress tests of price fluctuation conducted by the investment team, and submits stress test results to the Investment Decision-making Committee for reference. During post-investment management of projects, the Risk Management Department conducts regular and special stress tests to assess the Company's risk tolerance and reports the test results to the Company's management and risk management committee.
Market Research
The Market Research Department conducts independent market research and analysis of the proposed projects, and fully reveals potential market risks to facilitate the management's investment decision making. The Department follows hot themes to issue macro and special research reports, assists the Company's management in determining the investment orientation, and helps facilitate innovation. The Department keeps the Company's staff and the Group's management informed about the real estate market by issuing the Daily Update and the Weekly and Monthly Reports on the Real Estate Market regularly, and issuing from time to time the Industry Research Report for WeChat Subscription Account.
Significant Risk Management - Concentration Risk
The Company's investments are mainly in the four tier-one cities and key tier-two cities including Nanjing, Hangzhou and Wuhan. The business landscape mainly depends on the market environment and the Company's investment strategies. Currently under a prudent investment strategy, the Company primarily invests in tier-one cities and tier-two cities with a better market environment. The Company considers both returns on and risks in its existing investments, based on the AUM, investment risk management strategies and actual business operations.
The Company always pays attention to regional risks. The Market Research Department follows and researches main areas where the Company has existing or prospective investments, and issues market research reports in a timely manner to advise on the Company's business development.