Once the darlings of the market, these funds are now being shunned. Following the first failure of a public FOF to raise funds, a science and technology-themed fund has also failed to launch successfully.
Statistics show that in less than two weeks since November, four funds have failed to be issued, bringing the total number of funds that failed to raise sufficient capital for the year to 21, surpassing the total for all of last year.
Science and Technology-themed Funds
First Issuance Failure
On November 11, a Shanghai-based fund company announced that its 3-year closed-end hybrid fund for scientific and technological innovation had not met the filing conditions by the end of the fundraising period, and thus the fund contract could not take effect.
Public records show that the fund was approved in early February and launched on August 4. By November 3, after three months, it had not met the conditions for establishment, becoming the first science and technology-themed fund to fail in issuance.
According to the fund's prospectus, the fund was simultaneously offered on the company's direct sales platform and through 67 institutions, including securities firms and third-party fund sales platforms. In late August, several banks were added as distributors, and the fund participated in a series of fee discount activities. However, all these efforts proved ineffective.
Industry experts attribute the issuance failure of the science and technology-themed fund to factors such as the long-term closed-end operation and stock market volatility during the issuance period, which may have been significant contributing factors.
A top-performing fund manager from a mid-sized public fund company in Beijing told reporters that, from the perspective of fund product issuance, funds with a three-year closed operation are inherently more challenging to issue due to the longer capital lock-up period. On the other hand, the issuance scale of previously similar Technology-themed Funds under closed operation has generally been lower than that of Open-ended Funds. Currently, 20 three-year closed-operation Technology-themed Funds have been established, with an average issuance size of RMB 768 million, which is RMB 108 million less than the 23 Open-ended Technology-themed Funds established during the same period. In 2019, constrained by the RMB 1 billion issuance size limit and market supply-demand imbalance, the average issuance size of closed-operation Technology-themed Funds was RMB 960 million, not significantly different from Open-ended Funds; however, this year, the average issuance size of closed-operation Technology-themed Funds has sharply decreased to RMB 480 million, a reduction of RMB 346 million compared to the average issuance size of Open-ended Technology-themed Funds during the same period.
The aforementioned top-performing fund manager stated that a three-year closed operation is a 'double-edged sword.' From a liquidity perspective, it does result in some loss, but the absence of frequent subscriptions and redemptions allows the fund manager to make strategic investments with a long-term view, pursuing high-elasticity assets for long-term returns. Additionally, closed-operation funds can hold full positions throughout the closed period, giving them an advantage over Open-ended Funds in terms of position management.
In terms of operational methods, out of the 21 funds that failed to raise the required amount this year, 10 were either regularly open, closed-operation, or had a holding period.
During the fundraising period of this Technology-themed Fund, the technology sector experienced a pullback. The semiconductor index fell by 6% during the fund's issuance period, with a maximum drawdown of about 10%, making the relatively weak market environment even more unfavorable for the issuance.
The enthusiasm for Technology-themed Funds is cooling down.
Investments in technology stocks are still being viewed favorably.
Technology-themed Funds were once highly sought after in the market. Over the past one and a half years, the issuance scale of closed-operation Technology-themed Funds has been declining. The Red Earth Innovation and Ping An Funds' three-year closed-operation Technology-themed Funds, established this year, just managed to raise over RMB 200 million in their initial offering.
A marketing department head from a Beijing-based public fund company analyzed that the decreasing issuance scale of Technology-themed Funds is due to two main reasons: First, the earlier approved Technology-themed Funds were rare and issued by leading companies with strong distribution channels, making it easier to raise funds. Second, the profit-generating effect of Technology-themed Funds has weakened. Last year, from the second half to the first half of this year, technology stocks experienced significant gains, followed by a period of high-level volatility, reducing their attractiveness to investors. Moreover, many high-performing Technology-themed Funds have already been established, largely satisfying market demand. 'The failure to raise the required amount for a Technology-themed Fund may be an isolated incident. This year, the number of newly issued Funds has exceeded 1,200, with the total issuance scale approaching RMB 3 trillion, both setting new historical records. Given the simultaneous issuance and marketing through the same channels, it is reasonable to expect a certain proportion of Funds to fail in raising the required amount.'
Although the issuance market for some technology-focused Funds has cooled, the investment value of technology stocks remains bullish among many industry Institutions and investors during the 14th Five-Year Plan period.
Minsheng Jia Yin Funds stated that the 14th Five-Year Plan proposal indicates the need to accelerate the growth of new-generation information technology, biotechnology, new energy, new materials, high-end equipment, new energy Cars, green environmental protection, as well as aerospace and marine equipment industries. It also calls for the deep integration of the Internet, big data, and artificial intelligence with all industries. During the 14th Five-Year Plan period, the two major trend-based investment themes of Technology and the CSI Consumer 360 index remain unchanged.
The above-mentioned star fund manager from a mid-sized public Fund in Beijing also believes that technological progress is beneficial for the upgrading and transformation of the CSI Consumer 360 index, as well as for the efficiency improvement across various Industries. He is relatively bullish on the role of electronics, cloud computing, and new energy in enhancing and transforming traditional industries, and will continue to monitor the long-term market performance of technology stock investments.
In terms of returns, as of November 10, the average return since inception for 43 technology-themed Funds was 38%, with the highest being the Fuguo Science and Technology Innovation Fund, which has generated a total return of 82.13% over one and a half years since its establishment.
