The mutual fund industry is entering a new phase of high-quality development, with the principle of prioritizing investor interests becoming increasingly embedded, leading to various measures aimed at deeply aligning the interests of fund managers with those of fund investors, such as managers purchasing their own products. However, behind these multiple interest-alignment mechanisms, loopholes remain that warrant caution. It has been learned from multiple sources that a fund manager at an insurance-backed mutual fund firm has used personal funds to heavily invest in technology stocks, reaping substantial profits, while the products managed by this same manager are heavily weighted in value stocks, resulting in concerning performance. According to industry analysis, such operations can circumvent the risk of "trade convergence." Over the past year, the performance of the products managed by this fund manager has been poor, raising debates about professional ethics, as the actions are compliant but seemingly unreasonable.
It has been learned from multiple sources that a fund manager at an insurance-backed mutual fund used personal funds to invest in technology stocks. Benefiting from the tech stock rally over the past year or so, the manager achieved returns of several times the initial investment, with floating profits once exceeding 50 million yuan. Reportedly, after this highly profitable personal investment, the manager considered resigning but remains in their position and continues to serve as a fund manager. However, the public fund products managed by this individual are heavily allocated to value-oriented stocks such as baijiu and home appliances. Consequently, the performance of several products has been lackluster over the past year, ranking at the bottom among their peers.
Notably, the heavy allocation to value stocks in these products is not due to restrictions inherent to the fund's mandate. In terms of investment scope, most of the public fund products managed by this fund manager can cover all market sectors, with only one product specifically designated as a value blue-chip fund. A source close to the fund manager's company revealed: "One of the funds solely managed by this individual has been heavily invested in value stocks for years, with minimal changes to its top ten holdings in recent years, failing to adjust promptly according to market conditions. In contrast, their personal account has long been actively positioned in high-volatility tech stocks to adapt to market changes."
Industry insiders point out that this type of "differential operation" is primarily intended to avoid compliance risks such as "trade convergence" and "rat trading." While theoretically capable of sidestepping regulatory red lines, it still raises ethical questions regarding whether the fund manager has fulfilled their duty of diligence. Some industry voices offer a different perspective, suggesting, "The fund manager might also be considering the public fund clients' lower tolerance for volatility risk, hence heavily weighting the managed public funds in value stocks to avoid the relatively higher risks associated with tech stocks. If the current market trend were a significant correction in tech stocks and a rebound in value stocks, there might not be so much controversy."
However, other insiders pinpoint the core of the issue: the controversy surrounding the "differential operation" between personal funds and fund products does not hinge on short-term tech stock performance. The fundamental problem is that such differential strategies create a misalignment between the fund manager's interests and those of the fund investors. This misalignment can lead to multiple issues. On one hand, if a manager's personal funds are heavily invested in tech stocks while the public fund account is weighted towards value stocks, the manager might devote more research effort to the tech sector, potentially neglecting analysis of value stocks. On the other hand, if a manager is highly bullish on a specific sector and invests personal funds heavily in it, they might deliberately avoid investing the managed fund products in that same sector to circumvent regulatory risks, which could ultimately harm the investors' interests. Furthermore, such practices can raise doubts about the manager's professional ethics and damage investor trust in the industry.
Regarding fund managers engaging in stock trading, the specific compliance standards within the public fund industry vary. Some firms adopt a blanket prohibition, banning managers from stock trading altogether, while others permit it but require strict reporting procedures. Beyond the managers themselves, accounts of their immediate family members also typically require holding disclosure. A compliance officer from a large public fund company stated, "Strict restrictions on fund managers trading stocks are primarily to prevent rat trading risks. If a manager heavily invests personal money in a stock and then uses public fund money to buy the same stock, potentially inflating its price, it's akin to using investors' money to 'carry the sedan chair' for their own holdings, creating a risk of harming investor interests. Due to compliance concerns, most fund managers dare not invest personal funds in A-shares."
Another securities industry source mentioned, "It's not uncommon for fund managers to trade stocks with personal funds, particularly investing in US stocks. While some public fund institutions theoretically allow A-share investments by managers, they impose very complex reporting procedures, leading many managers to simply avoid A-share trading altogether due to the hassle." Some insiders note that managers can indirectly invest in A-shares through "real portfolio self-investment" in their own funds, thereby avoiding the compliance risks associated with direct personal investments. For instance, if bullish on tech stocks, a manager could heavily allocate the managed fund to tech and then personally invest in that fund, thus benefiting from the sector's rise while aligning personal interests with investors'. Managers like Yongying Fund's Ren Jie and Guojin Fund's Yao Jiahong have achieved substantial returns through real self-investment in their managed products.
However, a senior public fund investment researcher commented, "Public fund investments require diversification and must adhere to the 'double ten' rule, limiting the fund's sharpness and aggressiveness. But with personal funds, one can 'go all-in' on a single stock or focus on just two or three tech stocks, resulting in much stronger portfolio flexibility. Compared to self-investing in managed funds, direct personal account trading potentially offers greater excess returns." Given the difference in potential return flexibility, managers with weaker professional ethics might be tempted to adopt a strategy of "personal bets on tech, public funds in traditional value stocks."
Industry insiders are calling for optimized regulatory measures. In recent years, as the public fund industry progresses towards high-quality development, the principle of "investor interests first" is deepening. Practically, the industry is strengthening the alignment of manager and investor interests through various mechanisms, such as increased real self-investment by managers and potential salary reductions for managers whose funds consistently underperform their benchmarks. However, the existence of "differential operations between personal accounts and public fund products" exposes remaining vulnerabilities in the current interest-alignment mechanisms.
"A senior public fund compliance officer stated, 'Current regulations on fund manager stock trading primarily focus on aspects like 'trade convergence'; supervision regarding 'differential operations' has certain gaps.'" Another executive from a securities-affiliated public fund company expressed concern plainly: "With many public funds implementing salary cuts in recent years, under income pressure, some managers with weaker ethical standards are focusing on finding alternative ways to earn money. Against the backdrop of declining compensation from their fund manager roles, if 'differential operations' are not restricted, it's possible some managers might invest personal accounts in their most favored sectors while, to avoid trade convergence, allocating public funds to other sectors, potentially harming investor interests."
In this context, industry professionals advocate for regulatory improvements. An executive from an insurance-backed public fund stated directly, "Transparency is the best regulation. Could the public fund industry try requiring managers to publicly disclose their personal account holdings quarterly, subject to public supervision?" Additionally, other insiders suggest that fund companies could conduct self-inspections. If a manager engages in differential operations, such as "personally buying tech while the fund buys baijiu," the company should require an explanation from the manager and document the investigation process for future review.
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