Recruiting in China

Fund managers in China are switching jobs too frequently. That has led to concerns about the asset management companies’ ability to retain key portfolio personnel and ultimately deliver performance.

Around 148 fund managers have switched or quit their jobs so far this year compared with 85 people in the same period last year, according to Wind Info, a Shanghai-based financial data provider.

Wind Info says only three fund managers in China have more than 10 years of experience in the same company.

“In the US, the average working life for a fund manager is 4.8 to 4.9 years. In China, it is only 1.68 years,” says Vivian Lee, a fund researcher of Galaxy Securities in Beijing.

More and more fund managers are moving from public to private funds. One recent example is Mo Tai Shan. Last week, the ex-general manager of the Bank of Communications Schroder Fund Management moved to Chongyang Investment Management, the largest private hedge fund in China.

Public funds in China target retail investors in the same way that mutual funds do elsewhere. Private funds, meanwhile, target wealthy or institutional investors with a higher investment and risk threshold.

Fund managers are in short supply, so it is common for one manager to run more than one fund. For instance, Lu Zhigang, the former fund manager of Yin Hua Fund Management, controlled three fund products before he left the company this month.

“Here is the regular pattern: fund companies first post recruitment announcements, then the fund managers’ leaving announcements are likely to follow,” says a source from the marketing department of a fund house in Shanghai.

There are several reasons for the high turnover of fund managers in China.

First, the unsophisticated assessment system and poor incentive structure of public funds has made it challenging to retain managers. Many fund houses use the ranking of funds as a big indicator to judge a manager’s performance. However, this is not in line with the concept of “value investment” they put forward. Some fund companies even attempt to draw investors’ attention to new managers in the hope this will increase sales.

“Everything is based on the fund rankings here,” says a source from a fund house in Shanghai. “Investors select funds by their rankings and fund houses judge your [fund manager] performance also by the rankings. We do need a benchmark for comparing the performance of different funds, not just merely relying on the rate of return.”

Second, public fund managers have less investment flexibility, being subject to restrictions such as position limits and on asset allocation. “Fund managers want to be free from these restrictions,” says Jonathan Ha, director for advisory service at Shanghai-based consulting firm Z-Ben Advisors. He adds that good incentives and compensation from private fund houses are attractive to fund managers.

Third, poor portfolio performance forces fund managers to resign. According to Wind Info, by the end of May this year, the average growth rate of the 350 equities funds that it tracks in China was -12.72 per cent, with 54 funds down more than 20 per cent and only 12 funds turning in a profit.

To solve the problem of this high turnover, more and more fund companies tend to apply a “two fund manager” system, which means having one “old” or existing manager plus a new manager. This is also what The China Securities Regulatory Commission expects funds to do, according to analysts.

Wen Qun, an analyst at TX Investment Consulting in Beijing, says the problem will not be solved in the short term. “The fund industry in China has been developing quickly in recent years. It is inevitable the fund houses will face staff shortages,” says Mr Wen.

By Glori Ye