In recent years, the poor performance of actively managed equity funds has prompted a significant increase in the popularity of founding funds.

As of this year, over 370 new founding funds have been established, reaching a historic highHowever, there is increasing pressure for these funds to be liquidated, with 34 products having already closed this year.

Industry experts suggest that while founding funds have lower entry thresholds, this does not imply that fund companies face less pressure in managing these productsIn fact, founding funds with unstable scales are particularly susceptible to liquidation risksThus, after successfully launching these funds, companies need to ensure rigorous operations and enhance the competitiveness of their products.

Countercyclical positioning and a record high in new launches.

As the A-share market continues to adjust, the fund issuance market has hit a low pointBy December 17, more than 1,100 new public funds had been launched this year, with a total issuance scale of 1.05 trillion yuanBoth the numbers and scale are among the lowest levels seen in recent years.

Conversely, there has been fierce competition among fund companies to deploy founding fundsAccording to Wind statistics, by the end of this year, 375 new founding funds have been established, accounting for 31% of all new funds

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The trend has shown a steady increase, with the number of founded funds rising from 184 in 2019 to 351 in 2022.

A founding fund is defined by the requirement that fund managers, executives, or fund managers subscribe an amount of no less than 10 million yuan and hold it for no less than three yearsAs long as these conditions are met, the fund can declare successful fundraising.

In August of that year, the first founding fund, Tianhong Bond, was establishedBy 2013, restrictions on a minimum fundraising amount of 50 million yuan and a requirement for at least 200 subscriptions were removed.

Now, more than 11 years have passed since the inception of founding funds, and they have shown rapid growth in both number and scaleAccording to Wind data, by the end of the third quarter this year, the total scale of founding funds has exceeded 2.59 trillion yuan, with a total of 1846 founding funds in the market (calculated by merging different share classes).

In terms of product types, founding funds are found across various categories, with equity funds constituting the largest share at 45%. Specifically, passive index funds (ETFs) dominate the category of equity founding funds, while in mixed-type founding funds, equity-biased funds have a significant representationFor bond-type founding funds, they mainly consist of medium- to long-term pure bond funds.

According to the Tianxiang Investment Advisory Fund Evaluation Center, one of the main reasons for the eagerness of fund companies to launch founding funds in recent years is that they can successfully issue funds when market participation is low

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If the performance of these founding funds is strong when the market turns around, fund companies can capitalize on this to expand their scale and increase market share and visibility.

Moreover, founding funds are better aligned with investor interestsThe shared profit mechanism of founding funds allows fund companies to share risks and returns with investors, which fosters investor enthusiasm and is beneficial for the smooth launch of the products.

Performance divergence highlights the significance of heavy holdings.

In recent years, market fluctuations have led to significant performance divergence among founding funds.

So far, 30 founding funds have achieved returns exceeding 100% since their establishment, with the best being the Huaxia ShenZhen Major Consumer ETF, which was established in 2013 and has recorded a cumulative return of 268.88%. However, some funds have also suffered losses exceeding 50% since their launch, most of which were established in the second half of 2021.

From a short-term perspective, this year, the two standout funds have been the gaming-related ETFs, namely the Guotai Zhongzheng Animation and Gaming ETF Connect and the Huaxia Zhongzheng Animation and Gaming ETF Connect, both yielding over 51% this yearOthers, including QDII funds related to the Nasdaq, such as the Jiashi Nasdaq 100 Connect A and Boshi Nasdaq 100 Connect A, have also performed well this year

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Among actively managed equity funds, those with heavy investments in the Beijing Stock Exchange and artificial intelligence-related themes have excelled.

Conversely, several founding funds have faced poor returns, with 20 funds suffering losses exceeding 30% this year, predominantly among passive index funds tracking new energy themesMany of these funds were established in 2021 and 2022.

Regarding the reasons for performance divergence, insiders indicate that founding funds are merely one method of fund issuance, and product performance is still largely influenced by heavily weighted sectorsRecently, highly performing founding funds often have substantial investments in stocks related to artificial intelligence, while poorly performing ones are hindered by ineffective sector allocation, with some heavily invested in new energy sectors.

Increasing pressure for liquidation, with 34 funds exiting this year.

Despite the relatively low threshold for establishing founding funds, there is strict enforcement of exit mechanismsIf a fund’s net asset value falls below 200 million yuan three years after the contract takes effect, the fund's contract is automatically terminated, leading to a “loose entry but strict exit” paradigm.

As several products approach their three-year deadlines amidst decreased market earnings, liquidation events have become more common this year

Data shows that out of over 200 products liquidated this year, 34 of them are founding funds, demonstrating escalating exit pressures.

On December 16, Xinghua Fund announced that its Xinghua Yongxing Mixed Founding Fund has triggered grounds for contract termination, with its final operational day being December 16 and entering liquidation procedures on December 17.

Public records show that the Xinghua Yongxing Mixed Founding Fund was established on December 16, 2020, with an initial fundraising scale of 12.2643 million yuan, of which Xinghua Fund subscribed for 10 million yuan, accounting for 83.14% of the total fund shareBy the end of the third quarter of 2023, the fund had a scale of 24.2954 million yuan, and since its establishment, the fund has seen a loss exceeding 20%, likely attributed to its major allocation in the pharmaceutical sector.

There are also funds that have performed well but still face challenges in achieving larger scalesFor example, funds like Yongying Competitive Selection and Chuangjin Hexin Tong Shun Startup Board have yielded returns over 15% since inception but are compelled to close due to their scales remaining under 200 million yuan.

The Tianxiang Investment Advisory Fund Evaluation Center indicates that while founding funds have a low issuance threshold, they also face issues of unstable scalesTypically, small-scale founding funds are highly susceptible to significant withdrawals during unfavorable market conditions, resulting in them becoming “mini funds” or leading to liquidation, which tarnishes the manager's reputation and represents a risk associated with establishing founding funds.

Although the number of founding funds has increased over recent years, many existing funds have shrunk in scale, becoming mini products

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