China Securities Regulatory Commission issues action plan to reform public mutual funds with performance-linked fees and stronger investor alignment

The China Securities Regulatory Commission has issued an action plan to promote high-quality development of the public mutual fund sector, setting out 25 measures intended to shift industry incentives from asset gathering toward investor returns, alongside tighter supervision and risk controls. The plan promotes a floating management fee model for actively managed equity funds that links fees to performance, including differentiated fee rates for investors meeting certain holding-period requirements and lower fees where performance is materially below the benchmark. It also strengthens alignment between fund managers and investors by making investment returns the core of industry assessment, adding benchmark-relative indicators such as fund profitability while reducing the weight given to AUM rankings and firm revenue and profit, and by increasing requirements for senior executives and fund managers to co-invest in products they manage with longer lock-up expectations. To improve investor service and market functioning, the plan calls for optimised fund registration and more index funds and low- to medium-volatility equity-linked products, tighter use of performance benchmarks, and performance assessments over cycles of at least three years to improve the stability of equity investment. Further measures include issuing rules for public fund investment advisers, launching a direct sales service platform for institutional investors, enhancing governance expectations for controlling shareholders, boards and management, and strengthening a multi-layer liquidity risk framework and enforcement toolkit. The CSRC indicated it will advance implementation of the measures in an orderly manner.