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Since August, five pension FOFs have issued warning notices that may trigger the termination of fund contracts, including four pension FOFs under Bosera Funds and one pension FOF under Galaxy Funds.

Their scale at the end of the second quarter was between 9 million yuan and 44 million yuan. As sponsor-type funds, they will reach the "three-year deadline" in late August, which will trigger the clause that "on the day when the fund contract has been in effect for three years, if the fund asset scale is less than 200 million yuan, the fund contract shall be terminated and shall not be extended by convening a fund holder meeting."

In fact, since the beginning of this year, six pension FOFs have been liquidated due to triggering this clause.

It is worth mentioning that currently more than half of the pension FOF funds in the market have a scale of less than 200 million, and more than 40 pension FOFs may trigger this clause within the next year.

Frequent announcements of “possible liquidation”

On August 17, three pension FOFs under Bosera Fund issued warning announcements on the same day regarding circumstances that may trigger the termination of the fund contracts.

These three products are Bosera Retirement Target Date 2040 Five-Year Holding Period Mixed Fund (FOF), Bosera Retirement Target Date 2045 Five-Year Holding Period Mixed Fund (FOF), and Bosera Retirement Target Date 2050 Five-Year Holding Period Mixed Fund (FOF).

The above three products were all established on August 30, 2021, and will collectively reach the "three-year deadline" at the end of this month. The scale of the three funds at the end of the second quarter was 44 million yuan, 9 million yuan and 14 million yuan respectively. Their performance was poor. As of August 16, the returns since their establishment were -29.03%, -25.72% and -17.67% respectively.

On August 10, Bosera Pension Target Date 2035 Three-Year Holding, a subsidiary of Bosera Fund, also issued a warning announcement of possible triggering of fund contract termination. The fund was established on August 27, 2021, with a scale of 12 million yuan at the end of the second quarter; as of August 16, the return since its establishment was -24.53%.

On August 9 and August 16, Galaxy Fund issued the first and second reminder announcements that the one-year holding of the Galaxy Yuening Steady Retirement Target Fund may trigger the termination of the fund contract. The fund was established on August 23, 2021, with a scale of 9 million yuan at the end of the second quarter; as of August 16, the return since its establishment was -8.15%.

The above five products are all initiated funds. According to the terms, "If the fund asset size is less than 200 million yuan on the day when the fund contract has been in effect for 3 years, the fund contract shall be terminated and shall not be extended by convening a meeting of fund holders", they will all be liquidated in late August.

Simultaneously with the liquidation reminder announcement, there was also an announcement on the suspension of subscription and regular fixed-amount investment business for these five products.

It is worth mentioning that the four retirement FOFs that Bosera will liquidate - Bosera Retirement Target Date 2035 Five-Year Holding, Bosera Retirement Target Date 2040 Five-Year Holding, Bosera Retirement Target Date 2045 Five-Year Holding, Bosera Retirement Target Date 2050 Five-Year Holding, are obviously a series of retirement FOF products targeting different retirement dates. However, the five-year products are facing liquidation before the first opening day.

The first fund manager of the above four Bosera pension FOF funds was Mai Jing, who joined Bosera Fund in May 2020. During her tenure, she served as the general manager of the multi-asset management department and managed seven FOF products. In January this year, Mai Jing resigned from all products and left Bosera Fund.

"Maintain the shell" or "liquidate"?

This year, 28 pension FOF initiator funds have reached the “three-year deadline”.

As of August 20, there are 13 sponsored FOF funds that were established in 2021 and have reached the "three-year deadline", among which 10 products have a scale of less than 200 million yuan.

These 10 initiated pension FOF funds with a scale of less than 200 million yuan made different choices when the three-year deadline arrived. Six chose to "liquidate" and the other four chose to "maintain the shell."

For example, Huaan Pension 2040, a three-year holding pension fund, was established on May 13, 2021. Its issued shares are 96 million, and the shares in the past three years have been around 100 million. At the end of the first quarter, it was 98 million, with a scale of 78 million yuan. When the "three-year deadline" came in the second quarter, the fund company made a "shell protection" operation. At the end of the second quarter, the fund's shares suddenly increased sharply to 240 million shares, and the scale rose to 191 million yuan.

The same situation also happened to three pension FOFs, namely Hua Xia Pension 2055 Five-Year, Huashang Jiayue Balanced Pension FOF, and Taikang Fuze Active Pension Target Five-Year Holding, which reached the "three-year limit" in July this year.

Another 6 initiated pension FOF funds chose to liquidate, including CITIC Prudential Pension 2035 Three-Year Holding, Ping An Pension 2045 Five-Year, Penghua Changle Steady Pension One-Year, Harvest Pension Target Date 2045 Five-Year Holding, Invesco Great Wall Yixin Pension Target Date 2040 Three-Year Holding, and CITIC Prudential Pension 2040 Three-Year Holding. The scale of these funds ranges from 9 million to 100 million yuan.

In fact, for pension FOF initiating funds with a scale of less than 200 million yuan, "liquidation" or "protecting the shell" has become a problem facing fund managers.

A public fund person said that fund companies are not very positive about retirement target funds now. Since last year, many leading companies have stopped investing operating resources and no longer pay attention to retirement FOF business because the input-output ratio is too low.

However, many industry insiders also pointed out that pension FOF is a long-term development track in the future, but it is currently in a downturn.

In this regard, Yang Delong, chief economist of Qianhai Kaiyuan Fund, told reporters, "It mainly depends on the decision of the fund company itself. If they hope to expand this product, they will still keep the shell. But some fund companies may think that it is difficult to maintain the pension FOF and it is difficult to scale up, so they choose to liquidate."

Yang Delun explained that some managers may tend to maintain their listing status in order to retain their product line layout and are optimistic about future market conditions; while other fund companies may choose to liquidate their pension FOF products because their scale is too small and their maintenance costs are too high.

"Three-year exam"

Wind data shows that there are currently 273 pension FOFs on the market, of which 170 are initiated funds (only initial funds are counted, the same below), accounting for more than half.

In particular, a large number of pension FOF initiator funds were established in 2021, with a total of 21 new pension FOF initiator funds established in the entire market that year.

The threshold for establishing a sponsor-type fund is much lower than the 200 million yuan threshold for ordinary funds. It only requires the sponsoring capital provider to subscribe to the fund for an amount of no less than 10 million yuan and the holding period to be no less than 3 years. However, on the corresponding day after 3 years, if the net asset value of the fund is less than 200 million yuan, the fund contract will be automatically terminated.

This year, pension FOF funds have concentrated on reaching the three-year term node, so a large number of products that do not meet the 200 million yuan scale threshold are facing the risk of liquidation.

According to Jiang Rui, a researcher at Ge Shang Fund, currently more than half of the pension FOF funds on the market have a scale of less than 200 million yuan, and more than 40 of them may trigger the clause "on the day when the fund contract has been in effect for 3 years, if the fund asset scale is less than 200 million yuan, the fund contract shall be terminated and shall not be extended by convening a meeting of fund holders" within the next year.

It is worth noting that as a type of fund shares separately established for personal pension investment funds, a large number of pension Y shares are also under tremendous pressure.

Wind data shows that there are currently 197 individual pension Y shares on the market. This type of product was first established in November 2022, and then products were established in the past two years. As of August 16 this year, only 29 pension Y share funds have achieved positive returns since their establishment, accounting for 15%, and the average return since their establishment is -6.28%.

Among them, the returns of 5 products since their establishment are lower than -20%, including China Europe Foresee Pension 2050 Five-Year, with a return of -23.95%; Hua Xia Pension 2040 Three-Year Y, with a return of -23.14%; Hua Xia Fuyuan Pension Target Date 2045 Three-Year Holding Y, with a return of -21.77%; Hua Xia Pension 2045 Three-Year Y, with a return of -21.64%; ICBC Pension 2050Y, with a return of -21.35%.

As of the end of the second quarter of this year, the total size of personal pension funds in the entire market was 6.686 billion yuan, and the average size of a single product was only 35 million yuan.

Jiang Rui pointed out that individual investors apply for Class Y fund shares through their personal pension fund accounts. To encourage long-term investment of personal pension funds, investments in Y share funds usually enjoy preferential comprehensive rates. However, the initiated Class Y fund shares also face the problem of passive liquidation if the scale is less than 200 million on the day when the fund contract has been in effect for 3 years.

Wind data shows that since the first batch of pension target funds were approved in August 2018, 15 pension FOF funds have announced liquidation in the past six years, including a Y share fund - Penghua Changle Stable Retirement One Year Y.

Jiang Rui pointed out that as an innovative product, pension FOF has a long closed period and low expected returns. During the fundraising period of most pension FOFs, the equity market performed poorly and investors' risk appetite decreased, so the size of pension FOF funds has not been large. On the other hand, pension FOFs have poor past performance in extreme market environments, and it is difficult for investors to subscribe or add to them.

Jiang Rui believes that in the short term, pension FOFs will be affected by the "liquidation incident", investment sentiment may be negative, and the growth rate of scale may slow down, but in the medium and long term, investors still have demand for pension FOFs, and the development trend of pension FOFs may be a wave-like state.