With the number of holders and the number of shares held both falling sharply, how can Xinghua Fund keep alive a single product with assets of only just over 6 million yuan?

On October 8, Xinghua Fund announced that it would hold a meeting of the holders of Xinghua Anheng Pure Bond Fund shares by written communication to review a proposal to keep the fund operating.

Wind data show that by the end of the first half of this year, Xinghua Anheng Pure Bond had assets of only 6.42 million yuan and more than 1,300 holders, a sharp drop from more than 5,000 at the end of last year. All of the fund's current holders are individual investors, while institutional investors had fully redeemed and exited in the first half of this year.

According to the semi-annual report, the fund triggered on April 10 the condition of net asset value below 50 million yuan for 60 consecutive working days, putting it at risk of liquidation. Xinghua Fund said in the semi-annual report that it will continue to uphold the principle of maximizing investor interests, maintain the fund's investment strategy and actively carry out continued marketing.

By the end of the second quarter of this year, Xinghua Fund's public fund management scale was 5.695 billion yuan, of which bond funds accounted for 5.443 billion yuan, or more than 95% of the total.

Product faces liquidation risk

According to Xinghua Fund's announcement, the company decided to hold a meeting of the holders of Xinghua Anheng Pure Bond fund shares by written communication to review the Proposal on the Continued Operation of Xinghua Anheng Pure Bond Bond-Type Securities Investment Fund, with voting open from October 13 to November 9.

According to the semi-annual report of Xinghua Anheng Pure Bond, the fund triggered on April 10 the condition of net asset value below 50 million yuan for 60 consecutive working days. Under relevant management measures and the fund contract, the product faces liquidation risk.

As fund manager, Xinghua Fund said in the announcement that after consultation with the fund custodian Hengfeng Bank, it decided to convene the fund's holders' meeting by written communication and proposed to keep operating the fund.

By the end of the first half of this year, Xinghua Anheng Pure Bond had assets of 6.42 million yuan. Although this is clearly below the 50 million yuan liquidation threshold, Xinghua Fund is trying to keep the fund alive.

Xinghua Fund said in the semi-annual report of Xinghua Anheng Pure Bond that the company will continue to uphold the principle of maximizing investor interests, maintain the fund's investment strategy, actively carry out continued marketing and strive for sustained and stable growth in fund scale to create stable investment returns for investors. Starting from April 11, the company has borne the fund's fixed expenses on its own.

However, keeping a tiny fund alive is not easy. According to last year's annual report, Xinghua Anheng Pure Bond had more than 5,000 holders at the end of last year, with an average holding of more than 12,600 shares per holder. Among them, institutional investors held 9.74 million shares of Xinghua Anheng Pure Bond C, accounting for 15.21% of shares; individual investors held more than 54 million shares in Class A and C combined, accounting for 84.79%. At the end of last year, the fund had assets of 66 million yuan. Although the scale was small, it was still above the liquidation threshold.

But in the first half of this year, institutional money fully withdrew and the number of holders shrank sharply. By the end of the first half, the fund had only just over 1,300 holders, all individual investors, with an average holding of only just over 4,500 shares.

Fund liquidation has become common in the industry. Wind data show that as of October 8, 267 funds had been liquidated this year, including 73 bond funds. One of the main reasons for liquidation of such products is that fund net asset value fell below 50 million yuan for 60 consecutive working days, triggering the fund contract termination clause.

Difficulties of small public fund firms

Information shows that Xinghua Fund was established in April 2020 in Qingdao, Shandong Province. It is a new-generation "individual-owned" public fund firm in the industry, with Zhang Lei holding 65.6% of the shares and the rest held by seven employee shareholding platforms.

Wind data show that by the end of the second quarter of this year, Xinghua Fund had 13 public funds with total managed assets of 5.695 billion yuan. In terms of product structure, Xinghua Fund's product line still needs to be enriched. The company started with bond funds and currently has nine bond funds with total assets of 5.443 billion yuan, accounting for more than 95% of the total. Its four mixed funds have total assets of 252 million yuan.

Bond funds are currently Xinghua Fund's core products. For example, Xinghua Anqi Pure Bond and Xinghua Anyu Interest Rate Bond each have assets of more than 1 billion yuan; Xinghua Anying One-Year Regular Open Bond, Xinghua Anhui Pure Bond and Xinghua Anyue Pure Bond each have assets of more than 500 million yuan.

However, product divergence is obvious. Three bond funds, Xinghua Xingli, Xinghua Anfeng Pure Bond and Xinghua Anheng Pure Bond, each have assets below 30 million yuan, while two mixed funds, Xinghua Jingming and Xinghua Jingcheng, each have assets below 50 million yuan.

The "Matthew effect" in the public fund industry continues to intensify, and how small public fund firms can break through amid fierce competition has been a topic repeatedly discussed in the industry over the past two years. For Xinghua Fund, whose product line is relatively narrow, this challenge is especially severe, as several tiny funds have already appeared in its core category, and one of them even faces liquidation risk.

In August this year, Xinghua Fund made a senior management change, with Deputy General Manager Li Kun promoted to general manager. In February this year, former general manager Han Guanghua left for personal reasons, and company chairman Zhang Lei served as acting general manager. Information shows that Li Kun previously served as a product manager at Tianhong Fund, director of the financial institution department at Beijing Huicheng Fund Sales Co., Ltd., and assistant general manager (senior executive level) and deputy general manager at Xinghua Fund.

After management changes, Xinghua Fund urgently needs to solve the dilemma of its tiny funds, and its subsequent performance will face the dual test of the market and time.

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