China’s $4.4tn mutual fund industry finds itself in the crosshairs of President Xi Jinping’s financial crackdown, facing new limitations on fees and increased regulatory scrutiny. As the landscape of the industry shifts, fund houses are forced to adapt to the changing regulations and stricter inspections.
- Reduced Fees and Restrictions
- In accordance with new rules, both passive and active products must reduce fees.
- Fund managers are now prohibited from purchasing third-party services, limiting their ability to seek external expertise.
- Increased Oversight
- Funds are now subjected to on-site audit checks, with the National Audit Office initiating inspections of leading mutual fund houses’ accounting books.
- Securities regulators closely monitor trading activities of top managers, requiring daily trade reports for net sales.
President Xi’s focus on “new quality productive forces” like technology and manufacturing over finance signals a shift towards high-quality development and common prosperity. The industry reported significant losses for investors, placing blame on mutual fund managers for underperformance in mainland stocks.
- Growing Turnover and Regulatory Pressure
- High-profile fund managers are leaving their positions, leading to a younger, less experienced crop taking over.
- The regulatory environment discourages the cultivation of star fund managers, reducing pressure during volatile market conditions.
The traditional higher fees of Chinese mutual funds, compared to developed markets, are now being adjusted to align with global standards, with many reducing fees to around 1 percent. Leading firms like E Fund and China Asset Management have already made significant cuts to management fees.
- Changing Dynamics and Market Responses
- The departure of key managers like Qiu Dongrong has triggered sizeable redemptions and fund shrinkage.
- The once successful pattern of manager pay, attracting funds, and share price growth is faltering under the weight of fee crackdowns.
The era of large rewards for managing superfunds is coming to an end, as pay cuts and fee restrictions shift managers’ focus away from sheer asset scale. The evolving landscape of China’s mutual fund industry demands adaptability and resilience from all stakeholders to navigate the changing regulatory terrain.
