High turnover of China fund managers stirs debate

China’s mutual funds industry has witnessed an escalation in job-hopping among managers over the past 12 months amid a renewed wave of fund launches, a mushrooming private-funds sector and high volatility in the A-share market, new research finds.

According to Shanghai-based data provider Wind Info, 186 out of a total of 793 mutual funds in China, or 23%, had seen a change in fund manager by December 10 this year.  

This “revolving door phenomenon” has long plagued the industry. Wind Info points out that staff turnover in 2010 has risen almost 5% over last year, during which 118 out of 629 mutual funds saw a change in fund manager.

Out of the 60 fund management companies (FMCs) in China, 57 experienced changes in fund managers in 2010. China Nature FMC recorded the highest turnover rate, with four out of five fund managers and the general manager all leaving.

A number of reasons for the revolving door have been put forward, including the lure of improved compensation and the promise of career advance, but it was also suggested that some managers have simply buckled under the pressure of this year’s highly volatile markets.

Ge Yiqiang, a fund analyst at consultancy Howbuy, notes: “Volatile market conditions have increased the pressure on fund managers to perform compared with the downward market in 2008 and the strong rebound in 2009.”

He notes that China’s asset management industry has developed rapidly this year. Wind Info data indicate that private funds have brought 544 trust fund products to the market so far this year, while FMCs have launched 170 mutual funds. 

Ge suggests the enlarged pool of investment fund products in China has increased demand for fund managers. Moreover, the emergence and rapid development of the private-funds segment has encouraged a large number of fund managers to switch.

The CEO of one Shenzhen-based fund management company suggests that the main reason for fund managers to join private funds is that they face too many restrictions when managing mutual funds.

“Private funds are not regulated, providing them with greater freedom to pick stocks, build positions and trade on a daily basis,” he says. “The incentive mechanism for working in private funds is also better since staff can become partners and partially own the business.”

However, while manager turnover has led to an improvement in performance in some cases, frequent personnel shuffles typically cause instability and can impair returns.

The four equity funds of Baoying FMC, for example, all saw changes in fund manager this year and all underperformed the market. It was a similar story for Fortune SGAM, whose six equity funds all underperformed the peer average in 2010.

“A stable corporate environment is crucial to fund manager performance,” Ge concludes.

Among the most prominent moves from China’s mutual funds industry this year: star manager Sun Jiandong left China AMC to join Beijing Daohong Investment Company in February; Dai Yiyong, deputy general manager of ICBC Credit Suisse FMC, resigned in May, reportedly to establish his own firm; and in September, Mo Taishan, general manager of Bank of Communications Schroders, left to join Chongyang Investment, China’s largest private fund.