Accelerated liquidation of fund products during the year, accounting for 75% of equity related asset

Since the beginning of this year, the equity market has fluctuated and adjusted, and the liquidation of public funds has also accelerated.

Based on historical data observation, there is a certain correlation between the number of fund liquidations and market conditions. When market conditions are weak, the number of fund liquidations is also relatively high. Since the beginning of this year, the number of liquidation funds has been second only to the same period in 2018, among which equity fund products have become the main liquidation force this year, accounting for 75%, setting a new historical high.

In terms of quantity, the number of liquidation products of 9 fund companies, including Haifutong Fund, Puyin Ansheng Fund, and Shenwan Lingxin Fund, is no less than 5.

Industry insiders believe that fund liquidation helps investors stop losses and also helps fund companies reduce burden and concentrate resources on high-quality product operations, which should be viewed as normal.

Fund liquidation acceleration

According to Wind statistics, as of July 12th, based on the expiration date, 146 fund products (excluding initial funds, the same below) have pressed the "termination button" this year, compared to 99 in the same period last year, an increase of 47% year-on-year. Based on the number of liquidations in the past, from 2023 to present, the number of liquidated funds is only second to the same period in 2018.

Generally speaking, there are three main reasons for fund liquidation: firstly, the general meeting of fund unit holders votes to pass; Secondly, within the time specified in the fund contract, the net asset value of the fund is continuously lower than 50 million yuan or the number of fund unit holders is less than 200; The third is to meet other liquidation conditions stipulated in the fund contract.

It is a common situation to be 'forced' to liquidate due to being too small in scale. According to statistics, among the fund products liquidated this year, except the fund size of Pacific Securities, CCB China Bond Hubei Provincial Local Bond, and Fengli A, a dual bond of Chinese merchants (calculated by combining different shares), which are held in a rolling manner for six months, exceeds 200 million yuan, the product size of other funds is less than 60 million yuan, of which the fund size of less than 50 million yuan accounts for more than 90%.

From the perspective of fund managers, the 146 liquidation funds mentioned above are distributed among 69 institutions, among which 9 institutions have no less than 5 liquidation funds, including Haifutong Fund, Puyin Ansheng Fund, Shenwan Lingxin Fund, China Merchants Fund, Bank of China Fund, Dacheng Fund, Everbright Prudential Fund, etc.

The largest number of fund products liquidated is Haifutong Fund. Wind data shows that up to now, there are a total of 9 funds under HFT Fund that have been liquidated and terminated, of which 6 are passive Exponential type funds, 2 partial debt hybrid funds and 1 QDII fund.

In addition to the liquidated funds mentioned above, many "mini funds" have issued liquidation warnings. According to incomplete statistics, since July, Great Wall Xinxiang has held more than 10 funds, including medium and short term bond funds, Baoying Yingpei pure bond funds, and Guangfa Jixiang bond funds, in a rolling 90 day period. Due to multiple consecutive trading days where the net asset value of the funds is less than 50 million yuan, it has issued a warning notice facing the termination of fund contracts.

There are three main reasons for this

Some insiders in the public fundraising industry say that this is an inevitable result of the survival of the fittest in the market. As the market weakens, more and more products that lack competitiveness will exit the stage.

When it comes to the reasons for the increase in the number of liquidation funds, the above-mentioned public offering industry insiders have given three points: firstly, due to the large number of funds in the current market, with limited incremental funds in the market, investors redeem old funds to buy new ones, leading to liquidation risks for old funds; Secondly, the market tends to prioritize initial launches over holding operations, with some products that lack competitiveness going towards liquidation due to the survival of the fittest; The third issue is the poor performance of equity funds.

From historical experience, during periods of weak market conditions, the number of fund liquidations is relatively high, especially for equity products.

Data shows that from 2018 to 2022, the number of equity funds liquidated each year was 282, 73, 84, 134, and 149, respectively, while the Shanghai Composite Index rose by -24.59%, 22.3%, 13.87%, 4.8%, and -15.13% during the same period.

Since the beginning of this year, the A-share market has fluctuated and adjusted, and equity fund products have generally performed poorly. Data shows that as of July 12th, since the beginning of this year, the Shanghai Composite Index has risen by 3.5%, the Wind Common Stock Fund Index has fallen by 0.65%, and the Partial Stock Mixed Fund Index has fallen by over 2%.

It is not difficult to find that among the funds that have been announced for liquidation this year, there are 110 equity funds (equity+hybrid), accounting for 75%, which has reached a historic high.

Initiated funds also frequently liquidate

It is worth mentioning that since the beginning of this year, there have been frequent occurrences of initiating funds in liquidation funds. According to Wind data, as of July 12th, 18 initiated funds have been liquidated this year. Most initiated fund contracts come into effect for at least three years, and as the fund size remains below 200 million yuan, the fund contract automatically terminates.

On July 10th, Qianhai Kaiyuan Huize Two Year Fixed Bond Fund issued a notice on the termination of the fund contract and the liquidation of the fund assets. The fund officially entered the liquidation process on July 11th and stopped collecting fund management fees, fund custody fees, etc. The reason for liquidation is that the net asset value of the fund is lower than the contractual limit.

According to the provisions of the Fund Agreement, on the corresponding day after the expiration of three years from the effective date, i.e. July 7th, if the net asset value of the Fund is less than 200 million yuan, the Fund Agreement shall automatically terminate and be liquidated according to its agreed procedures. There is no need to hold a meeting of Fund Unitholders for deliberation, and the term of this Fund Agreement shall not be extended by holding a meeting of Fund Unitholders.

The fund was established on July 7, 2020. As of July 7, 2023, the net asset value of Qianhai Kaiyuan Huize's two-year fixed bond fund was less than 200 million yuan.

On the same day, another initiating fund, Boyuan Borui Hybrid Fund, announced that as of July 8th, the fund's asset size was less than 200 million yuan, triggering the termination of the fund contract. Data shows that as of July 8th, the cumulative return of the fund this year is -5.21%, with a return rate of -35.21% since its establishment. Meanwhile, the scale of this product has been consistently hovering at a low level in recent years.

Industry insiders in the public offering industry have stated that initiating funds require fund managers to use their own funds to invest for at least 3 years, achieving consistency in the interests of fund companies and investors, and to some extent ensuring the establishment of products. Especially in the cold stage of new fund issuance, initiating funds can help products achieve rapid establishment.

In the long run, whether it is an initiating fund or a non initiating fund, the ultimate size is largely related to performance.