As 2024 unfolds, the Chinese stock market has witnessed a rollercoaster of trends, characterized by an initial decline followed by a significant resurgenceMost major stock indices across the A-share market saw an uptick, and approximately seventy percent of actively managed equity funds posted positive returns, as per Wind's dataThis recovery in the market has inevitably drawn attention to leading players in the mutual fund industry, with E Fund Management Co., a titan in public mutual funds, being the center of interest.
On January 21, a comprehensive review of E Fund Management revealed troubling statisticsFrom January 1, 2024, to January 20, 2025, an astonishing 95 of the company's funds reported a negative net value growthOver the span of three years, from January 2022 to January 2025, 210 of E Fund's funds experienced the same troubling trendThis stark evidence reflects the dire situation that the firm faces amidst fluctuating market conditions.
Growth in scale under pressure amid declining net profits
Established on April 17, 2001, with a registered capital of 132 million yuan, E Fund Management has grown to become the leading asset management firm in China
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By 2015, it had ascended to the top of the industry in terms of non-monetary public fund management scale, maintaining a firm grip on that title ever sinceAs of January 21, 2024, the company boasted a total of 420 products under management, with a staggering 1.95 trillion yuan in total assets managed.
Despite the apparent dominance, E Fund's growth has stagnated since 2021, with only a 14% increase over the past four yearsIn stark contrast, the firm witnessed a 39.28% surge in its mutual fund scale from 2020 to 2021, managing over 1.7 trillion yuan at that timeThis decline in growth rate signals potential underlying issues.
The products under E Fund are diverse, but they significantly lean towards equity funds, which number 166, followed by 119 hybrid funds and 66 bond fundsHowever, the company's risk exposure appears imbalanced, with a heavy skew towards medium and high-risk products, evidenced by the relative scarcity of low-risk and high-risk offerings
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This could reflect a risk management strategy that may not align with current market sentiments, particularly given recent market fluctuations.
Analyzing E Fund's financials reveals a troubling trendThe firm's operating revenue has plummeted from 14.557 billion yuan in 2021 to 13.915 billion yuan in 2022, further declining to 12.501 billion yuan in 2023, with the first half of 2024 reporting 5.374 billion yuanMeanwhile, net profit has similarly deteriorated, falling from 3.837 billion yuan in 2022 to 3.382 billion yuan in 2023, and a meager 1.516 billion yuan in the first half of 2024. The rates of decline in net profits were alarming, with an annual decrease of 15.38% in 2022 followed by 11.86% and 6.27% in subsequent yearsThese downward spirals can largely be attributed to external pressures stemming from market volatility and the impact of asset management fee reforms initiated in July 2023.
Faced with this concerning trend, the leadership of E Fund, including Chairman Zhan Yuyin and Co-Chairman Liu Xiaoyan, must urgently devise strategies to reverse the adverse performance indicators
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It is crucial for the firm to restore confidence among investors and stakeholders alike.
Despite the adverse financial climate, E Fund does garner significant revenue from management fees, which approached 10 billion yuan in recent yearsIn 2022, the management fees totaled 10.151 billion yuan, which fell slightly to 9.275 billion yuan in 2023; custody fees were recorded at 2.189 billion yuan and 1.991 billion yuan respectivelyAdditionally, maintenance fees and distribution fees saw declines as well, reflecting the broader trends impacting revenues.
One of the standout cases within E Fund's portfolio is its ChiNext Medical ETF, which has faced significant lossesAs of January 21, this fund had a net asset value of only 0.3631 yuan, under the supervision of fund manager Zhang ZhanOver the past three years, this specific ETF has suffered a staggering loss of 44.88%, ranking it at a disheartening 1305 out of 1365 funds within its category.
Another poor performer is E Fund’s Pharmaceutical Bio C fund, managed by fund managers Yang Zhenshao and Xu Zheng
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In the recent three months, this fund experienced a deficit of 15.33%, with a current unit net value of 0.5646 yuanIts six-month performance has also suffered, with a decline of 2.97%, placing it at a comparably poor rank of 904 out of 976 funds.
Shockingly, amongst the 26 funds launched by E Fund since October 2024, only six have posted positive returns, while a staggering twenty funds have reported substantial lossesSuch widespread underperformance could severely erode investor trust and raise questions regarding E Fund's management acumen.
In light of these challenges, was a headline victory not within reach for the firm? Market volatility has further exacerbated the situation, with E Fund's index experiencing a decline of 2.6855% from October 23, 2024, to January 21, 2025. It underscores the intensifying pressures that the asset management giant currently faces.
Previously mired in compliance issues, reinforcing regulatory frameworks is essential
From a compliance perspective, E Fund has indeed faced its share of turbulence in recent years
In March 2023, the firm received a warning letter from the Guangdong regulatory body due to internal control compliance deficienciesThis incident shed light on potential weaknesses in the company’s governance structure and compliance frameworks.
To address these deficiencies, E Fund swiftly established internal audits and enlisted the services of a Hong Kong law firm for an independent investigationThe firm has reiterated its commitment to upholding compliance and integrityNonetheless, such incidents inevitably cast shadows over E Fund's reputation, requiring substantial efforts to rebuild trust.
As E Fund navigates a landscape marked by declining revenue and net profits amidst underperforming products, the emphasis must also lean towards heightened compliance efforts and robust internal managementThe road ahead will demand strategic adaptations that prioritize performance revitalization and regulatory adherence, solidifying their status as a leading player in the public mutual funds arena.