China Galaxy Securities: Policies Promote Reward-Oriented Public Placement to Further Improve Fundamentals of Non-Bank Finance

The Zhitong Finance App learned that China Galaxy Securities released a research report stating that public funds are an important part of China's medium- to long-term capital. This time, the Securities Regulatory Commission issued an action plan to promote the high-quality development of public funds, which is guided by investor returns, actively promotes the high-quality development of the industry, while increasing the scale of public equity investment and giving full play to the proper functions of the industry. Under the country's policy goal of “supporting a package of policies to stabilize market expectations,” medium- to long-term capital expansion further enhances expectations for improving non-bank financial fundamentals, and sector allocation is timely.

The main views of China Galaxy Securities are as follows:

Incident: On May 7, the Securities Regulatory Commission issued the “Action Plan to Promote the High-Quality Development of Public Funds” (hereinafter referred to as the “Plan”).

Optimize the management fee collection model and focus on investor returns. The “Plan” focuses on actively managing equity funds, and implements a floating management fee collection model based on performance comparison benchmarks for investors who meet holding period requirements. If the performance of the holding period fund product is above, in line with, or below the comparison benchmark, the upgrade, benchmark, and lower rates are applicable respectively. At the same time, the selection of performance comparison benchmarks is strictly supervised, the disclosure of information on the performance of fund products and the phased collection of management fees is strengthened, and costs for fund investors are reduced.

The performance-oriented assessment and evaluation system is improved, and the “Plan” to strengthen the long-term incentive and restraint mechanism improves the fund's internal, supervisory, and industry assessment and evaluation systems; everything is based on performance. The first is an internal assessment of the fund. Fund companies are required to establish an assessment system with fund investment income as the core, and appropriately reduce operating indicators such as scale rankings and revenue and profit. The second is an assessment by the supervisory authorities. Indicators such as investors' profit and loss ratio, performance comparison benchmark comparison, and share of equity funds are included in the evaluation system to increase the bonus points margin (50%) for indicators such as medium- to long-term performance and the size of equity funds purchased by oneself. The third is the evaluation of industry institutions. Establish an evaluation and award system centered on long-term performance of at least five years, increase the weight of indicators such as profit and loss, and performance comparison benchmarks, and put an end to evaluation and evaluation activities guided by short-term performance rankings.

Increasing the share of equity and increasing the function of the industry and increasing the scale of equity investment in public funds is an important gripper for the country to promote the entry of medium- to long-term capital into the market. The “Plan” makes institutional arrangements in four dimensions. The first is to strengthen regulatory guidance and policy guidelines, increase the weight of indicators related to equity funds, and formulate guidelines for public funds to participate in financial derivatives investment. The second is to promote innovation and development of equity products, support active management of the development of equity funds, enrich thematic index funds in line with national strategies and development guidelines, and develop pilot products for OTC broad-based index funds that specifically participate in convenient swaps and operations. The third is to optimize equity fund registration arrangements. In principle, ETFs and actively managed equity funds complete registration within 5 working days and 10 working days respectively, which is more efficient than 15 working days for hybrid and bond funds. Fourth, establish a classification and evaluation mechanism for fund sales agencies. Preferential policies are skewed towards institutions with large rights funds.

Strengthen supervision and enforcement, adhere to the bottom line of risk, actively promote the high-quality development of the industry at the level of industry management, further improve fund company governance, strengthen core investment and research capacity building, raise the level of service investors, support the coordinated development of various fund products, guide leading and small and medium-sized funds to carry out differentiated management, and establish and improve an evaluation and evaluation system for industry culture construction work. At the level of risk control compliance, improve the industry's multi-level liquidity risk prevention and control mechanisms, strengthen guidance on long-term fund investment behavior, continuously improve the level of industry compliance, and improve industry reputation management and expectations guidance capabilities. At the level of supervision and enforcement, we will further increase the supply of the legal system, strictly enforce the equity and executive entry requirements of industry institutions, strengthen the enforcement of regulations and systems, insist on crackdown, and adopt administrative penalties, administrative supervision measures, and self-regulatory measures in an integrated manner.

Risk warning: risk of policy implementation falling short of expectations; risk caused by capital market fluctuations.