Chinese managers to cut QDII fund fees for domestic investors

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Chinese fund firms are planning to slash management and custodian fees for qualified domestic institutional investor products that invest offshore, as regulators push ahead with fee reforms to reduce costs for investors.

Chinese authorities have instructed some fund companies to keep management fees for QDII products no higher than 1.2 per cent and custodian fees at no higher than 0.2 per cent, a source at a Shanghai-based fund house familiar with the matter told Ignites Asia.

Sources at two other fund houses also confirmed to Ignites Asia that they are making preparations to cut QDII fund fees soon, without providing further details.

The latest round of fee reductions, which may kick off in the next few weeks, aims to align industry fees for QDII funds below a certain rate.

This article was previously published by Ignites Asia, a title owned by the FT Group.

The QDII scheme, which was launched in 2006, allows licensed Chinese financial institutions, such as fund houses and securities firms, to use the quota allowance to help investors access overseas securities.

The possible industry-wide fee cuts for QDII funds come 18 months after Chinese authorities first initiated sweeping industry reforms to pass on a bigger share of investment returns to end investors, which resulted in tighter margins for fund firms.

China’s securities watchdog in July 2023 demanded fund companies reduce management fees on equities fund strategies from a standard charge of 1.5 per cent to a maximum of 1.2 per cent, and keep custodian fees on those products at 0.2 per cent or lower.

At that time, regulators had spared the more niche QDII category, with many fund companies keeping management fees for actively managed equities funds in this category at 1.5 per cent and above.

There are currently around 300 QDII products in China. More than 80 have management fees of 1.5 per cent or higher, most of which are actively managed equities and mixed asset funds, according to iFinD data.

They include China Asset Management‘s Rmb2.15bn ($295mn) ChinaAMC Global Select Equities Fund, which charges 1.85 per cent in management fees, the highest among QDII products, as well as a 0.35 per cent custodian fee.

Harvest Fund Management charges a 1.8 per cent management fee for six equities and mixed asset QDII products, including the Rmb4.1bn Harvest US Growth Equities Fund.

Eight out of 14 QDII strategies from JPMorgan Asset Management‘s China fund unit have management fees ranging between 1.5 per cent and 1.8 per cent.

Manulife‘s sole QDII product, which invests its Rmb1.6bn assets primarily in Indian stocks, charges a 1.8 per cent management fee and 0.3 per cent custodian fee.

While many bond and passive index QDII funds have kept management fees below 1 per cent, some of them have custodian fees that are higher than 0.2 per cent.

In December 2023, China unveiled a second phase of the fee reforms, focusing on reducing trading commissions that funds pay to brokerage firms and preventing managers favouring a single broker.

A third phase of the reforms, which will focus on regulating fees in the fund sales process, was scheduled to be unveiled “before or after the end of 2024”, China’s central bank said in a December report on the country’s overall financial industry.

Amid the broader regulatory context of containing fees as well as pressures to stand out from intensifying competition with similar rivals, fund managers have over the past year expanded management and custodian cuts to fixed income funds and exchange traded funds.

Major domestic fund houses in November slashed fees on 36 broad-based ETFs and ETF feeder funds in a co-ordinated move.

Bloomberg Intelligence analysts have predicted that this could inflict “real pain” by wiping out up to 60 per cent of the annual revenue from ETF products for some managers.

*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at ignitesasia.com.