Where to go for mini funds Public offerings face a dilemma

According to the first quarterly report of the public offering in 2024, the number of mini funds with a net value of less than 50 million yuan after the combined shares exceeds 1,000, accounting for about 10% of the total number of funds in the whole market. In the process of shifting the industry from high-speed development to high-quality development, the retention of mini funds has become a common "growing pain" for large and small fund companies.

In the eyes of industry insiders, the elimination of the chaff and the survival of the fittest is the only way for the industry to achieve high-quality development. It is a long-term measure for the industry to clear out some funds with poor long-term performance and small scale and further integrate investment and research resources.

Mini funds go and stay dilemma

In recent years, with the number of public funds exceeding 10,000, the number of mini funds has also increased rapidly.

According to the latest quarterly report of public funds, as of March 31, 2024, the number of public funds in the whole market has reached 10,223 after the combined share, of which the number of funds with a net value of less than 50 million yuan has reached 1,583, excluding the new initiation products issued since this year, the number of mini funds with a net value of less than 50 million yuan has exceeded 1,000, accounting for about 10% of the total number of funds in the whole market. Whether to clear or stay has become a headache for fund companies.

The Administrative Measures for the Operation of Publicly Offered Securities Investment Funds (hereinafter referred to as the "Administrative Measures") stipulate that for open-end funds, if the number of fund share holders is less than 200 or the net asset value of the fund is less than RMB 50 million within 60 consecutive working days after the fund contract takes effect, the fund manager shall propose a solution, such as changing the mode of operation, merging with other funds or terminating the fund contract. When a fund occurs in the above situation, it becomes what is commonly referred to as a mini-fund.

According to the Administrative Measures, the management fees, custody fees, accountant fees and attorney fees of the fund may be paid from the fund's assets. However, recently, a reporter from the Shanghai Securities News learned from the industry that the mini fund may usher in a new policy. "Fund companies are encouraged to independently bear all kinds of fixed fees for mini funds, including audit fees, fund unit holder meeting fees, interbank account maintenance fees, IOPV (fund share reference net value) calculation and release fees, registration fees, etc., and will no longer be paid from fund assets. According to an industry insider, in addition to mini funds, initiation funds with fund contracts that have been in effect for 3 years and have a net asset value of less than 200 million yuan are also included.

"If the fund company chooses to bear the fixed fee of the mini fund independently, it should disclose it in the periodic report, and if it chooses not to bear it, it should propose a solution in accordance with the regulations by the end of June 2024, and change the mini status of the product or liquidate it by the end of 2024. In particular, the person added that the circumvention of the payment of fixed fees for mini-funds in the form of "help funds" is also prohibited.

Another public offering person said that some mini funds that are still valuable to the company will choose to "keep" and leave a "seed". For some mini-funds that are expected to be difficult to "grow up", liquidation is a natural thing.

According to public data, as of April 23, the number of funds liquidated by fund companies this year has reached 57, and more than 80 have issued liquidation announcements, while the number of funds liquidated last year was only 54.

The aftermath of the triumphant advance

For example, chicken ribs are tasteless to eat, and it is a pity to discard them. The mentality of fund companies towards mini funds is also a love-hate mixture.

Subjectively speaking, due to the costs involved, the process and disposal time are relatively long, and the fund company does not have a strong incentive to take the initiative to clean up the mini fund.

"To clear a mini fund, the process needs to hold a general meeting of holders, communicate with the custodian bank to revoke the custody, and make an announcement, etc., which takes about 2 to 3 months in the time process, during which there are some audit and other expenses, totaling about 100,000 yuan, and the whole process is more troublesome. The head of the marketing department of a large fund company in Beijing told reporters.

But on the other hand, the policy orientation and the excessive stock of mini funds will be subject to certain resistance in the approval of new products, coupled with the frequent search for "help funds" to save the market, the cost is not low, and some products "cannot be saved at all", these are important reasons for the fund company to make up its mind to "break away".

"If you only save it once, the product performance can rise, and the scale can achieve natural growth, and the company is willing to save it. A relevant person from a large fund company in Shanghai told reporters that "saving" a fund, as long as the scale "rushes" to more than 50 million yuan, some large companies have the ability to directly contribute, and some small companies will find "help funds" to incur some expenses.

"What is more difficult is that after the fund is rescued, it will have to be held, if the scale cannot go up when the time comes, and the funds are gone, it still needs to be rescued. It's better to go back and forth like this. The person said.

"In a way, we're all paying off the debts we owe for the first two years. An executive of a large and medium-sized fund company in Shanghai said.

In his opinion, the rapid development of public funds in the first two years has also buried sequelae while making rapid progress. Many highly homogeneous funds are issued at market highs, and then underperform. With the continuous adjustment of the market, the funds that entered the market that year gradually ebbed, and a large number of fund "shells" were abandoned in the sand. "This is an unforgettable lesson for fund companies and investors. The aforementioned executive said.

The only way for the high-quality development of the industry

Although there are "labor pains", in the eyes of some industry insiders, based on the long-term high-quality development of the industry, survival of the fittest is a process that must be experienced.

"Performance and scale are mutually beneficial. In the past 3 years of market adjustment, many funds have faded their former halo, exposing problems such as style drift and betting on investment. A market source from a large fund company in Beijing said.

"If the industry wants to move forward, it must continue to remove the chaff, remove the funds with long-term poor performance and scale that cannot be improved, make the long-term performance and high-quality fund products bigger and stronger, and innovate with a prudent attitude, so as to achieve high-quality development of the industry. The person added.

Liu Yiqian, head of the business of Shanghai Securities Fund Evaluation and Research Center, said that the essence of the withdrawal of mini funds is to establish a fund market environment of survival of the fittest and orderly advance and retreat, so that good fund products can get more capital inflows, and fund managers can concentrate resources on good product design and good product management, which is conducive to the healthy development of the public offering industry in the long run.