The landscape of public mutual funds has been turbulent lately, reflecting a mixture of challenges and opportunities as market dynamics evolveThe most recent data highlights a worrying trend: in 2024 alone, 15 funds failed to meet their minimum fundraising targets, culminating in their non-establishmentNot to mention, a staggering 230 mutual funds had to terminate due to falling short of contractually mandated asset thresholdsThis pattern signifies an unsettling reality within the investment sector, where funds are struggling to attract sufficient capital in an increasingly competitive environment.

Looking ahead to 2025, the marketplace is witnessing a steady rise in the number of public mutual funds being registered, with a notable preference for passive index fundsIndustry experts contend that the volatility in both equity and debt markets, coupled with reductions in interest rates, has diminished the allure of traditional mutual funds for investors

Nevertheless, 2024 saw remarkable growth in passive investing, especially with index funds delivering favorable resultsAs the stock market transitions into a slow and steady upward trajectory, there are projections that investor willingness to engage with passive index funds will continue to strengthen.

However, the frequency of new fund launches facing underwhelming fundraising results has become a pressing issueJust recently, two additional funds were added to the list of those that could not secure the requisite backing for establishment, due to failing to comply with their own fundraising conditionsFor instance, the Dongfang Xinyu Steady One-Year Holding Hybrid Fund announced on December 13, 2024, that it couldn't meet the required fundraising benchmarks, rendering its contract ineffectiveSimilarly, the CITIC Prudential Shanghai Stock Exchange Science and Technology Innovation Board 100 Index Enhancer Fund also declared its inability to establish itself on November 30, 2024.

Throughout the 2024 calendar year, the situation has become even more concerning, with experts highlighting multiple factors contributing to these failures

• TSMC Sales Exceed Expectations
• What are Indonesia's considerations in joining BRICS?
• Differentiated Competition in the AI Mobile Industry
• TMC Technology’s Hong Kong IPO Faces Scrutiny
• Cambrian's Market Value Surpasses 300 Billion

One representative from a public fund marketing entity in South China noted that the challenges for different types of products can vary significantlyRecently, active equity funds have particularly faced difficulties due to the dismal market performance observed in previous years, which left many investors with negative experiences and lower confidence in these funds’ abilities to generate excess returns going forward.

This sentiment has also extended to passive equity funds, which are encountering challenges of their ownAccording to this South China expert, a trifecta of issues is at play: the perceived lack of confidence from investors regarding future market performance, a saturation of similar products, and the ongoing efforts to reform fee structures, which complicate motivating sales teams effectively.

Private wealth manager Wu Suwei further echoes this sentiment, elaborating on the current intense competition within the public fund market where homogenous products are proliferating

This competitive press surely compresses fundraising capabilities, with many funds struggling to stand out amidst the sea of similar offeringsWu points out that those funds that are unable to attract adequate financing often focus excessively on short-term returns, offering a limited variety of asset allocation that fails to meet modern investor demands for stability and security.

Yuan Shuai, Executive Vice President of the Agricultural and Cultural Industry Revitalization Research Institute, also shared insights on this issue, stressing that products falling short in fundraising frequently demonstrate a lack of innovation in their design and either overly conservative or aggressive asset allocationsThese offerings often miss the mark in capturing market trends and investor desires, often leading to overly optimistic or vague return projections that cause skepticism among potential investors.

Compounding these issues, since the beginning of 2024, public funds have increasingly activated termination clauses owing to failing to maintain statutory asset levels for consecutive days

The statistics from Wind indicate that through 2024, approximately 230 public funds initiated liquidation procedures due to their net asset values declining below the contractual thresholds stipulated in their agreements.

Market analysts predominantly attribute this downturn in investor engagement to the aforementioned volatility in the stock and bond markets, with many public funds failing to deliver expected performance results, which has further dampened investor enthusiasm for allocating capital.

By January 9, 2025, research from Wind noted that over 3,600 public funds were listed with unit net values below one yuan, and nearly 2,900 of these funds documented negative total returns over the preceding three monthsIn their recent research publication, CITIC Securities highlighted that the average performance for active equity funds in 2024 hovered around four percent, with roughly two-thirds managing to produce positive returns.

A closer examination by Wind indicates that a sizable proportion of the funds terminating contracts are mixed and index funds

Of the 230 funds mentioned, around 132 were of a mixed type, while 63 were categorized as index fundsOn another note, the ongoing concerns regarding bond and mixed-bond funds that failed to meet certain values have also drawn significant scrutiny, with 214 such funds now included in the earlier mentioned statistics, representing 5.9%.

The question remains as to why mixed public funds have consistently struggled with their fundraising efforts despite an overarching consensus promoting diversification in investment strategiesBai Wenxi, Deputy Director-General of the China Enterprise Capital Alliance, attributes this phenomenon to declining returns from bond-oriented mixed funds in the wake of successive interest rate adjustments, which are further eroding their appeal to investors.

Meanwhile, the performance of equity-oriented mixed funds hasn't stood out either, contributing to a steadily declining interest in allocations to these vehicles

The average yield for actively managed equity-oriented funds in 2024 was merely 3.5%. Fund sizes across the board have declined by 2.87% from year-end figures, suggesting a broader trend of capital retrenchment.

Data for the fourth quarter of 2024 illustrated a significant collapse in newly registered funds, with merely 47 new mixed funds and 62 bond funds launched, both dipping sharply compared to previous quarters.

As the atmosphere appears to simultaneously chill for new offerings while heating up for passive index funds, the potential for these financial products seems to be defying broader market woesThroughout the final quarter of 2024, around 280 new funds began operations, raising a total of 317.3 billion yuan, signifying visible growth and a shift in investor preferencesThe explosion of the ETF market, particularly noticeable in the past year, has routed attention toward passive investment strategies.

CITIC Securities’ most recent analysis indicated that between December 30, 2024, and January 3, 2025, there were 39 newly registered public funds up for submission to the relevant authorities—including 21 index funds and 9 bond funds

Notably, the overall compound value of passive index funds has surged, amassing a total of 48,479.6 billion yuan on the books, which is reflective of a historical high in capital inflow.

As angel investor and seasoned AI expert Guo Tao articulates, current market conditions demonstrate a marked preference for passive index and quantitative fundsThe characteristics of these products—lower investment thresholds, stable returns, and diverse allocation strategies—align well with contemporary investors’ desires for lower-risk assets and stable income streams.

The appetite for “fixed income plus” products appears to retain its status as a popular choice within investment portfoliosFeedback from frontline industry actors has indicated a noticeable uptick in recognition for such products' value propositions, balancing underlying fixed income with the prospect of capital appreciation.

Wu Suwei shares additional insights that emphasize how, since the economic blip post-September 24, investors’ emotions have shifted toward optimism, as they hope not to miss out on potential market upswings.

Presently, with interest rates at historically low levels, funds with absolute return requirements are increasingly being funneled towards equity assets, forecasting a renewed interest in fixed-income plus funds as viable options as yields hover low.

From an investor standpoint, the current milieu showcases burgeoning expectations for more tailored and diversified portfolio allocations

Guo underscores a noticeable shift toward safety and stability in fund preferences, focusing on low-risk, high-liquidity investment vehicles, while also emphasizing the importance of long-term gains and compound returns.

In response to these evolving investor needs and demands, financial institutions are actively working to enhance their product portfolios while promoting more diversified public fund offerings.

Wu Suwei articulates that financial entities face various new challenges, ranging from the innovation in product designs and strategies to fostering stronger brand identities and improving investor education and support initiativesAddressing these challenges necessitates robust dialogues with investors to better understand their risk profiles and preferencesEnhanced risk management capabilities are essential for institutional resilience and paired collaborative efforts among peers in the sector will be crucial for promoting a health-focused evolution of the public fund marketplace.

As Bai Wenxi aptly notes, the intensifying competitive landscape may suggest that deficits in fundraising for new offerings could linger in the near-term