Summary of Key Points
This year, the pace of public fund liquidations has accelerated significantly. As of August 26th, 219 funds have been liquidated, an increase of nearly 50% compared to the same period last year, setting a new record for this time frame. Among them, initiatory funds (funds established by companies themselves) account for nearly half (107 funds). This is mainly due to the "three-year survival threshold" that these funds face—if their assets do not reach 200 million yuan, they are automatically liquidated. It is noteworthy that some initiatory funds with impressive performance have still been liquidated due to insufficient assets. Meanwhile, fund companies are continuing to issue new initiatory funds at a rapid pace (more than 300 this year), driven by the need to diversify their product lines and support new managers. However, this comes with costs and brand risks.
I. A Record Number of Liquidations, with Initiatory Funds Being the Hard Hit
The number of fund liquidations this year is nearly 50% higher than last year, and initiatory funds make up a significant portion of these liquidations. This is not incidental. During the industry's downturn in 2023, fund companies used initiatory funds to quickly enter new sectors (such as renewable energy and healthcare) and support new managers. Now, these products are facing a crucial test: their assets must reach 200 million yuan within three years, or they will be liquidated.
For example, the Xinao Yiyuan Pension Fund was established in August 2023, and its assets did not reach the required 200 million yuan by the end of August, leading to its liquidation. Another example is the Ping An FTSE China State-Owned Enterprises ETF, which was liquidated by the holders' meeting just five months after its establishment due to its small assets of 6.4 million yuan (a so-called "mini fund"). In a volatile market, investors are more likely to redeem their funds, further squeezing the assets of smaller funds and accelerating the liquidation process.
II. Good Performance Doesn't Matter? Asset Size Is a Critical Barrier
Many assume that fund liquidations are due to poor performance, but this time it's different. Fifteen liquidated initiatory funds had cumulative returns of over 50%, and some, such as the Taikang CSI Science and Technology Innovation ETF A and the Hongta Hongtu Information Industry ETF A, even doubled in value. However, they were still liquidated because their assets were too small (only one fund exceeded 100 million yuan).
Fund companies are not unwilling to keep these good products; they do allocate resources for marketing, but the effectiveness depends on market conditions and distribution channels. If the market is poor, investors may be hesitant to buy; or if the channels do not promote the products, they will remain unknown. In the end, if the assets do not grow, the funds must be liquidated. Conversely, some products that failed the assessment still survived because their assets exceeded the required threshold, such as the Wanjia CSI Software Services ETF A, which lost 42% in three years but still managed to reach the required asset size.
III. Why Are Initiatory Funds Still Popular Despite High Liquidation Risks?
Despite the high risks, fund companies continue to issue them for two main reasons:
1. Low Barriers to Entry: Conventional funds require 200 million yuan in assets and 200 investors to be established, while initiatory funds can be set up with just a small amount of company capital. This makes them suitable for filling gaps in the product line or providing a training ground for new managers. Since new managers may not have a large following, initiatory funds offer a lower-barrier entry point.
2. Positive Public Image: Initiatory funds emphasize the company's investment in the funds, which helps to show a shared risk with investors and enhances the company's brand image.
However, this comes with costs. Companies must cover the initial investment, and the management fees for mini-funds often do not cover operational expenses (research, settlement, marketing, etc.). Therefore, if they can raise funds through conventional channels, they may prefer other options.
IV. Normalized Liquidations Are a Good Thing, but Concentrated Liquidations Pose Risks
While liquidations are not inherently bad, concentrated liquidations can be problematic:
- Brand Risk: Investors may view the company as incompetent if multiple products are liquidated quickly, and distribution channels may be reluctant to cooperate.
- Trust Crisis: When investors see their funds being liquidated, it can lead to skepticism about the entire industry.
Therefore, fund companies are balancing the need to liquidate ineffective products with the goal of retaining potential ones by increasing marketing efforts for the more promising ones.
Conclusion
This year's wave of fund liquidations is a result of the industry's strategic investments from three years ago, with initiatory funds being at the center of the attention. By clearing out inefficient products and fostering new opportunities, the public fund industry is optimizing its structure through a process of "metabolism." For investors, when choosing funds, it is important to consider both performance and asset size. Smaller funds, especially those approaching the three-year mark, are at higher risk of liquidation and should be approached with caution.