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China discourages short-termism in $3.8 trln mutual fund industry

reuters.com · 06/10/2022 10:51
China discourages short-termism in $3.8 trln mutual fund industry

- Chinese mutual fund houses should defer bonus payments to senior executives and fund managers, and reclaim or claw back employees' remuneration if they conduct misbehaviour, China's fund association said in guidelines published on Friday designed to promote healthy development of the $3.8 trillion industry.

Fund companies are banned from short-term performance reviews and excessive incentives, and their senior executives and fund managers must use a portion of their bonus to buy the companies' own products, according to guidelines published by the Asset Management Association of China (AMAC).

Fund houses should "priorities investors' interest, and promote long-term, sustainable development of the company," AMAC said in the guidelines to regulate performance review and pay management.

Companies should also set up incentive systems that can retain high-quality talent without increasing risks or endangering compliance, AMAC said.

Chinese fund managers are ranked by performance on an annual, quarterly, and monthly basis, fostering a culture that some analysts say contribute to wild swings in Chinese stocks.

The guideline comes as local fund managers face direct competition from global players such as BlackRock and Fidelity International, as China has scrapped foreign ownership restrictions in the sector.

According to the new guidelines, which take effect immediately, at least 40% of senior executives' and fund managers' bonuses must be subject to deferred payment spanning a period no shorter than three years.

Performance reviews must reflect long-term cycles, or investment performance of at least three years, AMAC said.

Senior executives must use at least 20% of their bonus to buy the companies' own funds, and fund managers must invest at least 30% of the money, according to the guidelines.

Last month, China's securities association urged brokerages to set up a sound remuneration system, warning that excessive, or short-term incentives could trigger compliance risks.

($1 = 6.7114 Chinese yuan renminbi)

(Reporting by Samuel Shen and Andrew Galbraith)

((samuel.shen@thomsonreuters.com; +86 21 20830018; Reuters Messaging: samuel.shen.thomsonreuters.com@reuters.net))