Chinese fund managers cut fees after pressure from regulators

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China’s biggest asset managers on Monday slashed fees on thousands of mutual fund products in a swift reaction to the government’s move to cut interest rates across the country’s rapidly evolving financial services sector.

In response to the China Securities Regulatory Commission (CSRC) statement over the weekend, the fund company said it would “guide the mutual fund industry to initiate fee reform in a stable and orderly manner, and allow the industry to adjust the fund’s fee rate.” to support,” he promised. reasonably ”.

E-Fund, the mainland’s largest mutual fund company by size, said it had cut the management fee for its 74 equity-focused funds from 1.5% to 1.2% of fund assets in a bid to “lower investor asset management costs.” . A separate batch of 89 funds will be capped at a custodian fee of 0.2% of fund assets, he added.

Partly owned by China Asset Management, Bank of Communications Schroeder Fund Management, a joint venture between state-owned bank Bocom and British asset manager Schroeders, and now US private equity group Warburg Pincus. Zhong Ou Asset Management also announced similar fee cuts in separate announcements.

The move, which has been anticipated for months, comes as the Chinese government pushes for more “people-oriented” reforms alongside a year-long “co-prosperity” effort, with regulators also and seeks to limit executive compensation for fund managers. reduce the gap between rich and poor.

And it comes at a time when falling Chinese stock prices are adding pressure within the industry. The majority of China’s retail investors are becoming more sensitive to fees as rising stock prices no longer help offset transaction costs.

Foreign investment firms, including BlackRock, are rushing to exploit China’s nascent mutual fund industry, but new pressures on fees are expected to call into question their exposure to government reforms.

“It was already true that the risk premium applied to China operations has risen in the last 18 months,” said Peter Alexander, founder of Shanghai-based fund consultancy Z-Ben Advisors. “Currently, there is downward pressure on the expected earnings of that business operation.”

“I wouldn’t go so far as to say that the move is in any way aligned with common prosperity, but I believe it’s ‘adjacent to common prosperity,'” he added.

Chinese mutual funds generally charge higher fees than their peers in developed markets. The average is worth 1.43% of fund assets, compared with less than 1% in the U.S., according to estimates by domestic broker Tianfeng Securities, according to Morningstar. According to TX Investment Consulting, the industry collected a total of RMB 144 billion ($19.9 billion) in management fees in 2022.

According to the state-run Shanghai Securities News, the CSRC is expected to push forward with further fee reforms, including rolling out fund products with variable fees and inducing fee cuts for other products. Regulators expect total fees for equity-focused funds to fall 26% from 2022 levels by 2025, according to the Times.

Market players say the move will hit small firms, which rely heavily on management fees, hard.

“Given our asset size and investment expertise, the impact on us will be limited, so we definitely welcome the fee cuts,” said an executive at a major Chinese mutual fund firm who requested anonymity. . “But it can be a painful adjustment for smaller players.”

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