The struggle for control at Chunhou Fund has led to severe consequences for its product portfolio, with numerous funds facing liquidation or coming precariously close to it. As of February 19, the company reported that its flagship product, Chunhou Lijia, has seen its net asset value drop below 50 million yuan for 30 consecutive working days, which brings it to the brink of contract termination and asset liquidation.
Moreover, Chunhou Lijia is not alone in this predicament; the company has been overwhelmed by similar scenarios affecting numerous other funds under its management. Since the fourth quarter of the last year, ten funds from Chunhou have issued warnings concerning their impending liquidation. In quick succession, both Chunhou Wenjia and Chunhou Wenyue were officially closed down due to insufficient size, which occurred on January 23 and February 7 of this year, respectively. Reports indicate that during the previous quarter, numerous large withdrawals by institutional investors also impacted the performance of these products.
The exodus of funds from Chunhou raises critical questions about the underlying reasons for this downturn. Is it directly tied to ongoing disputes over its ownership structure? In an attempt to clarify, the fund manager addressed these concerns, attributing the subpar net asset values of certain products to a mixture of challenging market conditions, public sentiment, and the structural composition of its offerings.
Chunhou Fund's battle regarding its ownership has recently escalated to legal proceedings as tensions with regulatory authorities mounted. The fund's management indicated that they are working towards a resolution under regulatory guidance, and updates will follow as the situation evolves.
Critical to this narrative is the dramatic contraction in fund size, as highlighted by Chunhou Lijia's latest announcement. With its reported size plummeting from a staggering 206 million yuan to merely 24 million yuan over the last year's fourth quarter, the fund's predicament is clear.
Despite being a vehicle favored by institutional investors—who accounted for an impressive 99.44% of holdings as of mid-2024—significant redemptions have struck the fund hard. Two institutional players, for instance, substantially pulled out their investments last year, contributing to this alarming shrinkage in fund size.
A similar story concerns several other funds managed by Chunhou, all facing the same fate. The liquidity crisis deepened after the company issued multiple warnings regarding impending liquidation. Chunhou Wenjia and Chunhou Wenyue both succumbed to this financial strain earlier in the year due to their small size. Reports from the previous quarter confirmed that institutional investors had significantly withdrawn their investments from these products, which further compounded the existing liquidity crises.
For example, in the case of Chunhou Wenjia, an institutional investor—a major holder—abolished its entire position of 500 million shares last year, significantly diminishing the overall size of the product to dismally low levels. This struggle for capital was detrimental; by the time the fund reached the third-quarter mark, the total shares had fallen to less than 200,000, indicating a significant crisis.
In response to these challenges, Chunhou has been anything but dormant. Over a five-day span in November, the company managed to garner an influx of capital from two institutions, buying and redeeming over 34 million shares in a bid to stabilize the fund’s position. However, this burst of activity proved unsustainable in the long run and led to an announcement on December 26 that Chunhou Lijia had breached the critical threshold for liquidation.
In addition to its immediate financial maneuvers, Chunhou has also sought to negotiate changes to its fund agreements in hopes of retaining its products. Chunhou Lijia recently announced plans to convene a meeting of stakeholders to discuss proposed modifications that could provide more substantial leeway against termination conditions. They seek to extend the period before contracts are terminated from 50 to 60 consecutive working days, giving the management ten additional days to present potential solutions and seek stakeholder approval before any drastic measures like liquidation are taken.
As of now, Chunhou’s management retains a diverse range of fund products, totaling an estimated 23.138 billion yuan in capital. Yet, a concerning statistic reveals that seventeen of these funds depend heavily on institutional capital, with many being exclusively institutional offerings. Alarmingly, about a third of these products are now valued below the 200 million yuan benchmark, raising further concerns about their viability.
In the broader context of the Chinese fund industry, it is essential to note the evolving landscape characterized by an oversaturation of public mutual fund products. This saturation has inevitably led to a higher turnover rate and normalized liquidations due to market realities, with many funds being “forced” to shut down due to their small asset sizes. For mid-sized firms such as Chunhou Fund, this dynamic presents significant challenges as they grapple with reduced product numbers while struggling to maintain a competitive edge.
Against this backdrop of financial turbulence lies the deeper issue of internal strife, primarily concerning Chunhou’s ongoing ownership dispute. With an alarming amount of fund products facing size contraction, one can't help but question whether there is an intrinsic link to the continued disagreement over control of the company.
Chunhou Fund has drawn significant scrutiny since its establishment in late 2018, largely due to uncertainties surrounding its ownership. In December, the company found itself at odds with the Shanghai Securities Regulatory Bureau after launching legal action against the agency. Allegations surfaced that certain shareholders had transferred ownership stakes without adhering to critical reporting obligations, leading to a series of investigations into the fund’s dealings.
The discord exists between two primary figures: Xing Yuan, the company’s general manager, and Liu Zhiwei, a rival claimant to control. The dispute has persisted for nearly three years now, with both parties standing firm in their contradictory assertions regarding ownership rights. Following claims made by Xing Yuan in September 2024, she alleged that Liu Zhiwei had engaged in behind-the-scenes negotiations with various stakeholders regarding a stake acquisition without her direct consent.
Conversely, Liu Zhiwei contends that he was compelled to negotiate for a 10% stake from Xing Yuan, which resulted in immediate financial exchanges, including a transfer of 26 million yuan. As tensions flared, Liu was characterized as a contender keen to expand his influence over Chunhou by pursuing partnerships with structured debt-related organizations. This resulted in formal complaints made by Xing Yuan to regulatory bodies.
In March 2024, the Shanghai Securities Regulatory Bureau took corrective measures against several key figures for their roles in “private” equity transfers, deeming these agreements null and without merit. However, the dispute only intensified, with Liu Zhiwei declaring his proactive compliance with industry regulations while accusing Xing Yuan of refusing to honor outstanding financial obligations in line with regulatory directives.
Against this increasingly complex narrative, Chunhou Fund has seen its board meetings hamstrung by the ownership disputes, rendering statutory disclosures increasingly problematic. The consequences are dire, as evidenced by the Shanghai Securities Bureau’s announcement in September 2024, indicating non-compliance regarding significant reporting responsibilities for the fund's performance in 2023 and early 2024.
Scrutiny of the company’s latest quarterly reports underscores a lack of standard corporate governance, leading to alarming discrepancies in their disclosures. Phrases that should unequivocally link board oversight to management assurances have been improperly altered, leading to significant compliance concerns across the board.
All signs indicate that as Chunhou Fund confronts the combined challenges of diminishing fund sizes and significant internal conflicts, resolution remains distant, characterized by a persistent struggle over ownership that casts a long shadow over its future viability and performance.