news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

Text/Ren Hui

ZhonggengfundRumors are debunked time and time again, but they become far-reaching predictions time and time again!

On July 21, Zhonggeng Fund issued an announcement stating that Qiu Dongrong will resign as fund manager of five products including Zhonggeng Value Navigator from July 19, 2024 due to personal reasons, and will no longer serve as deputy general manager of Zhonggeng Fund.

As a top domestic public fund manager, Qiu Dongrong's resignation naturally attracted widespread attention from investors.

But what caused more discussion was the many controversies behind Qiu Dongrong's resignation.

Why did the repeatedly denied rumors come true? Why were the products redeemed in large quantities in advance? Can the future performance be sustained? Investors have too many questions that Zhonggeng Fund needs to answer.

The whole story of Qiu Dongrong's resignation

At the end of April this year, some media suddenly revealed that Qiu Dongrong would resign from all managed products and his position in the company, but the relevant links were quickly deleted.

In response to the rumors, a person close to Zhonggeng Fund told China Securities Journal that Qiu Dongrong's managed products will hire additional fund managers, which may have caused misunderstandings about his resignation. At present, the industry has responded to the regulatory call for "de-celebrity" and platform-based transformation, and many fund companies have reduced the burden on star fund managers or hired additional fund managers to co-manage products.

On the morning of May 10, another media revealed the progress of Qiu Dongrong's resignation. "Qiu Dongrong's resignation may not be so quick, and the whole process is expected to take some time. Next, the products he manages may first hire some fund managers."

On the evening of May 10, "Caijing" reported that it learned from multiple channels that Qiu Dongrong has indeed made it clear to some channels that he will step down, and his products will hire additional fund managers in the near future.

On May 11, Zhonggeng Fund issued an announcement that the Zhonggeng Value Quality and Zhonggeng Value Leadership, which were previously managed by Qiu Dongrong alone, hired Wu Chenggen and Liu Sheng respectively, and the rumors came true.

However, Zhonggeng Fund explained the decision to hire more fund managers: This is to comply with the goal and overall framework of high-quality development of the industry and strengthen the role of public offering funds.Investment ResearchCore capabilities, and constantly improve the "platform-based, team-based, integrated, multi-strategy" investment research system. This decision was made after careful consideration and discussion by the company's management and core members of the investment research team, aiming to expand the fund manager team, enhance investment management capabilities and boundaries, and support the high-quality development of the industry through long-term mechanisms.

Zhonggeng Fund also stated that if there are further arrangements in the future, the company will issue an announcement in a timely manner and call on investors to follow the company's announcement and not to believe or arbitrarily speculate on information obtained through other unofficial channels.

While Zhonggeng Fund was giving its explanation, several media outlets subsequently revealed that Qiu Dongrong's resignation was a high probability event.

"A new fund manager will be added; matters regarding senior management and equity are still under discussion, and perhaps the decision-making power or equity will be retained; the process will take some time."

"Qiu Dongrong does have plans to resign and has already communicated with the company, but has not yet entered the formal resignation process. Regarding various recent rumors, it is expected that the answer will be revealed as early as after July this year (when the product closure period ends)."

"There is such a plan, but it won't be so quick. It will take some time." An insider told reporters, "He (Qiu Dongrong) said that because of his busy career, he hasn't had a good vacation in all these years, so he wants to return to his family and rest for a while."

Although there were occasional rumors in the following two months, the topic of Qiu Dongrong's resignation calmed down as Zhonggeng Fund personally stepped in to refute the rumors.

However, on July 21, Zhonggeng Fund issued an announcement stating that Qiu Dongrong would resign as fund manager of five products including Zhonggeng Value Navigator from July 19, 2024 due to personal reasons. At the same time, he would no longer serve as deputy general manager of Zhonggeng Fund and other positions. The rumors once again became a reality.

Why did the repeatedly denied rumors come true?

According to the "Information Disclosure Management Measures for Publicly Offered Securities Investment Funds" and the "Guidelines for the Management of Investment Management Personnel of Fund Management Companies", for major events such as changes in fund managers, the relevant information disclosure obligors shall prepare an interim report within two days and publish it in designated newspapers and designated websites.

In addition, in addition to disclosing information as required by laws and regulations, fund managers and fund custodians can also focus on providing useful information for investors' decision-making. They can independently improve the quality of information disclosure services on the premise of ensuring fair treatment of investors, not misleading investors, and not affecting the normal investment operations of the fund.

In practice, fund companies generally make announcements after all aspects of the process have been approved, rather than when the fund manager decides to resign.

However, there are some "unwritten rules" in the industry. For example, the resignation process of star fund managers who left in the past two years is generally to hire new fund managers first. It should be noted that there will be a lot of media reports that fund managers may leave, but fund companies often do not deny it. This is a tacit hint to investors to avoid sudden resignation and brand crisis, and then wait until the time is right to officially announce the resignation.

This was also an important controversial point in Qiu Dongrong's resignation process. Zhonggeng Fund refuted the rumor through the media, "calling on investors to follow the company's announcement and not to believe or speculate on information obtained through other unofficial channels", but the rumor eventually came true.

Therefore, why did the repeatedly denied rumors come true? Did they mislead investors? Did they treat institutional and retail investors fairly? These questions require Zhonggeng Fund to give investors a reasonable explanation.

Some industry observers pointed out that the resignation of Qiu Dongrong went through many twists and turns, including rumors, rumor-refuting and real evidence, which exposed the long-standing information asymmetry problem in the fund industry. Institutional investors or channels with larger amounts of funds often get priority in obtaining news of fund managers' resignation and adjusting their positions.

"If you want to leave, please at least follow the principle of open and transparent information disclosure, and make unified announcements through announcements or official channels. Don't just let the big stakeholders leave first, and then flood the market with all kinds of true and false information, leaving only retail investors at the bottom of the news chain." said the aforementioned observer.

Did the institution flee early?

After Qiu Dongrong was revealed to be about to leave, Zhonggeng Fund called on investors to follow the company's announcement. But on the other hand, the funds managed by Qiu Dongrong showed signs of large-scale redemptions very early on, and the higher the proportion of institutional holdings in the fund, the greater the redemption intensity.

Therefore, there are constant doubts about "letting the institutions go first" and "covering up the institutions going first". Whether institutions have priority over retail investors in obtaining more accurate information and fleeing has also become a focus of many people's attention.

On July 19, the five products managed by Qiu Dongrong announced their second quarter reports. There are several data points worth noting:

First, investors redeemed a large number of shares even though the performance was not bad.

Qiu Dongrong's performance this year has not shown a significant decline, but the fund has been redeemed in large quantities by investors.

According to data from Tiantian Fund Network, the total scale of Qiu Dongrong's management reached 23.782 billion yuan at the end of 2023. As of the end of the first and second quarters of this year, the total scale of Qiu Dongrong's management was 19.854 billion yuan and 14.708 billion yuan, respectively, a decrease of about 38%.

Second, the higher the proportion of institutional holdings, the greater the redemption potential of investors.

Before leaving, Qiu Dongrong managed five funds, namely Zhonggeng Value Pilot Mixed, Zhonggeng Small Cap Valuestock, Zhonggeng Value Flexible Allocation Mix, Zhonggeng Value Quality One YearHolding PeriodMixed and Zhonggeng Hong Kong Stock Connect Value Stocks, Zhonggeng Hong Kong Stock Connect Value Stocks just passed the closure in July, so we will not discuss it.

Source: Tiantian Fund Network

According to data from Tiantian Fund Network, as of the end of 2023, the institutional holdings of Zhonggeng Value Leader Mixed, Zhonggeng Small Cap Value Stock, Zhonggeng Value Flexible Allocation Mixed and Zhonggeng Value Quality One-Year Holding Period Mixed were 45.24%, 49.30%, 13.41% and 7.69% respectively.

Institutional holdings of Zhonggeng Value Leading Mixed Fund and Zhonggeng Small Cap Value Stock Fund are the largest. Coincidentally, these two funds also had the largest redemptions by investors in the first half of the year.

In the first and second quarters of this year, 671 million and 1.117 billion shares of Zhonggeng Value Leading Mixed Fund were redeemed respectively, and the total shares shrank from 3.902 billion shares to 2.258 billion shares, a decrease of about 42.13%.

In the first and second quarters of this year, 500 million and 933 million shares of Zhonggeng Small Cap Value Stock were redeemed respectively, and the total shares shrank from 2.522 billion to 1.167 billion, a total share reduction of about 53.72%.

However, the total shares of Zhonggeng Value Flexible Allocation Mixed and Zhonggeng Value Quality One-Year Holding Mixed, which have a low institutional holding ratio, shrank by 23.98% and 24.77% respectively in the first half of the year, which are relatively low.

Third, funds with a high proportion of institutional holdings further increased their redemption efforts in the second quarter

While Zhonggeng Fund calls on investors not to blindly believe or arbitrarily speculate on information obtained through other unofficial channels, the redemption efforts of some funds are increasing.

For example, the redemption strength of Zhonggeng Value Leader Mixed Fund and Zhonggeng Small Cap Value Stock, which have a relatively high proportion of institutional holdings, has increased significantly in the first quarter of this year, and the redemption strength has further increased in the second quarter.

Source: Tiantian Fund Network, total share change rate = redemption shares during this quarter / total shares at the end of the previous quarter

In the first quarter, 671 million shares of Zhonggeng Value Leading Mixed Fund were redeemed, with a total share change rate of 15.61%, while 1.117 billion shares were redeemed in the second quarter, with a total share change rate as high as 31.43%.

The same is true for Zhonggeng Small Cap Value Stocks, with 500 million shares redeemed in the first quarter and a total share change rate of 17.8%, while 933 million shares were redeemed in the second quarter, with a total share change rate of as high as 43.7%.

However, the redemption shares of Zhonggeng Value Flexible Allocation Mixed and Zhonggeng Value Quality One-Year Holding Mixed, which have a lower institutional holding ratio, did not change much between the first quarter of this year and the fourth quarter of last year. Although the redemption intensity also increased in the second quarter, it was significantly smaller.

Why do funds with a higher proportion of institutional holdings show signs of early redemption, while funds with a higher proportion of retail holdings do not?

With the release of the semi-annual report of the fund, data such as the proportion of institutional holdings will be revealed soon. Did institutional investors run away? How much did they run away? The answers will be revealed one by one.

Did an institution learn about Qiu Dongrong's resignation before retail investors? Did an institution leave first? Did an institution leave first to cover up for the institution? There are still many questions that Zhonggeng Fund needs to answer for investors.

Can the performance continue?

According to data from Tiantian Fund Network, since May 11, when five funds hired new fund managers, many funds have experienced a pullback of around 8% in just two months, and the decline has exceeded the CSI 300 Index.

After this round of drawdown, all five funds have entered a loss-making state this year, among which Zhonggeng Small Cap Value Stock and Zhonggeng Value Flexible Allocation Mixed have lost more than 10%.

Looking back at the five years at Zhonggeng Fund, Qiu Dongrong has not had a fund that has a loss of more than 10% in a complete natural year. It is questionable whether the young successors in the future can recover from the drawdown and continue the record.

According to the announcement, Liu Sheng took over the Zhonggeng Value Navigator Fund, Chen Tao took over the Zhonggeng Small Cap Value Fund, Wu Chenggen took over the Zhonggeng Value Smart Fund and the Zhonggeng Value Quality Fund, and Sun Xiao took over the Zhonggeng Hong Kong Stock Connect Value Fund.

Among the four fund managers, only Chen Tao is reassuring. Liu Sheng and Sun Xiao are both young players who are just starting out. Wu Chenggen cannot be evaluated because he has never managed a fund alone. Chen Tao has been managing Zhonggeng Value Pioneer Stock alone for nearly two years. His performance during this period is similar to that of Qiu Dongrong, which is not easy in such a market environment.

In addition, according to "A Letter from Zhonggeng Fund to Investors", Liu Sheng, Chen Tao, Wu Chenggen and Sun Xiao have different circles of competence, but the common point is that they all have a deep understanding of value investing and strategy systems.

The convergence of investment strategies also means that Zhonggeng Fund’s foundation faces the dilemma of rising together and falling together.

References:

1. "Qiu Dongrong recruits new staff for two products, and the resignation rumors resurface. What is the truth?" First Financial Daily

2. "19.8 billion fund manager Qiu Dongrong is rumored to leave again! Industry insiders: Managed products may hire more staff first" National Business Daily

3. "Why do the disclosures of resignation of star fund managers repeatedly cause controversy?" Finance

4. "Rumor becomes prophecy, Qiu Dongrong of Zhonggeng Fund will leave" Finance