New data indicates that the number of Chinese investment funds that were liquidated in the first half of 2018 exceeded the number liquidated during the four year period from 2014 – 2017.
Figures from financial data provider Wind indicate that as of 27 June a total of 250 Chinese funds have entered liquidation since the start of 2018.
This figure exceeds the number of Chinese fund liquidations during the four year period from 2014 to 2017, which was 246 in total.
Bond funds (127) and mixed funds (127) have accounted for the majority of liquidations since the start of 2018, with only 12 stock funds and 7 money market funds entering liquidation.
Chinese Fund Liquidations from 2014 – 2018
|2018 (to 27 June)||250||12||2||127||102||7|
Data courtesy of Wind
A key reason for the closure of many funds is contractual stipulations made at the time of their establishment, or fund holders making the decision to terminate fund agreements.
The launch of new asset management regulations that seek to break “implicit guarantees” has also meant that certain investment vehicles, such as principal guaranteed funds, are now prohibited by law.
Analysts further point out that the recent proliferation of “mini-funds” in China accounts for many of the liquidations, given that these vehicles are often too small to satisfy conditions set by securities regulations.
According to the “Securities Investment Fund Operation Administrative Measures” (证券投资基金运作管理办法) if funds have less than 200 holders or if their net assets are under 50 million yuan for 60 consecutive working days, fund managers must submit a report and liquidation plans to the China Securities Regulatory Commission (CSRC).
Analysts expect the fund closures to accelerate, with Jia Zhi (贾志), an executive with TX Investment Consulting, telling National Business Daily that the market environment remains weak, performance has fallen short of expectations and fundholders are pursuing redemptions.
“The main reasons for an increase in liquidations include a reduction in the entry threshold for new products, high operating costs for mini-funds, as well as the suspension of custom funds or outsourced funds following the completion of their terms.”