China mutual funds cut fees as regulator targets $5 trillion sector

SHANGHAI – More than a dozen major mutual fund companies in China cut fees in roughly 1,500 fund products on Monday as regulators started reforming fee practices in the US$3.7 trillion(S$5 trillion) industry in an effort to reduce costs to investors.

The money managers, including China Asset Management and Bank of Communications Schroder Fund Management, said in separate statements that management fees in certain equity-focused products would be cut to 1.2 per cent of fund assets, from 1.5 per cent previously. The custodian fee would be reduced to 0.2 per cent of assets from 0.25 per cent.

The cuts, which the fund companies said in identical phrasing were “aimed at reducing investors’ costs in managing their wealth”, come after China’s securities regulator on Saturday vowed to guide mutual fund fees lower.

Chinese mutual funds on average charge investors higher fees than peers in developed markets such as the United States, according to Morningstar.

The China Securities Regulatory Commission (CSRC) said it had drafted reform plans after listening to opinions from market participants, and would optimise mutual funds’ fee-charging model and steadily lower the industry’s fee rates.

Fund management fees would be capped at 1.2 per cent of assets and custodian fees at 0.2 per cent, state media reported.

“The fee cuts will hit fund companies’ earnings in the short-term”, with the pain felt the most by those heavily focused on active equity products, said fund consultancy Z-Ben Advisors’ head of research Ivan Shi.

“It’s not yet clear if lower fee costs would facilitate fund product sales.”

The reform comes as regulators also seek to limit executive pay at fund management companies and banks in a so-called “common prosperity” drive designed to reduce wealth gaps.

Fund managers are often blamed by retail investors in a sluggish market for pocketing fat fees despite their underperformance.

An index tracking the performance of China’s actively managed equity funds tumbled 22.3 per cent last year, more than the 15.1 per cent fall in the benchmark Shanghai Composite Index.

Nevertheless, the industry collected 144.1 billion yuan (S$26.9 billion) in management fees in 2022, up 1.7 per cent from a year earlier, according to TX Investment Consulting Co.

The industry’s total assets under management doubled over the past four years to 26.68 trillion yuan at the end of March.

Fee cut

FullGoal Fund Management said it would cut fees on 119 products starting on Monday, while Harvest Fund Management announced cuts for 113 products.

Other fund houses announcing fee reductions include ICBC Credit Suisse Asset Management and Zhong Ou Asset Management, which is partly owned by Warburg Pincus.

In Saturday’s statement, the CSRC said fee cuts would bring fund industry’s growth more in line with investors’ interest.

The reform will be rolled out in several stages, with fund companies to be prodded initially to lower fees for equity products, and launch more types of funds such as those with floating fee rates, official Shanghai Securities News reported over the weekend.

In later stages, the watchdog will seek to lower trading fees of fund products, and also regulate fee practices in fund distribution. REUTERS