Dialogue With Fan Yonghong: The "Great Era" Of China'S Funds Is Coming

The development of capital market will inevitably promote the development of fund industry. The types and scale of funds will achieve a historical leap, and China's fund industry is ushering in a golden age of development.

In March 1998, 2 billion Southern Kaiyuan fund and 2 billion Cathay Pacific Jintai fund were announced to be established at the same time, marking the formal establishment of China's real investment fund. More than 20 years later, by the end of September 2020, the total scale of public funds was 17.80 trillion, becoming the most important institutional force in China's capital market.

The development of mutual fund industry is not only an important embodiment of the achievements of China's capital market in the past 30 years, but also an important clue to interpret the trend of capital market.

Recently, the 21st century economic report talked to fan Yonghong, chairman of Xiangshan wealth forum and chairman of Pengyang fund. He also hoped to see the changes of capital market from the development of China's fund industry.

It has been nearly 10 years since our last interview with fan Yonghong. During this period, profound changes have taken place in the macro-economic situation, the basic system of capital market and even the development of asset management institutions.

Fan Yonghong has been known as "Godfather" in the industry and has been active in the front line of China's fund industry.

Fan Yonghong participated in the fund pilot work in the early stage of China's fund development, personally experienced and witnessed the development history of the fund. He founded Huaxia Fund in 1998 and is now the chairman of Pengyang fund. During fan Yonghong's term of office, the former was molded into the largest fund management company in China, and a number of star fund managers such as Wang Yawei, Jiang Hui, sun Jiandong, Hu Jianping, Yang aibin and Zhang Yichi were cultivated.

The basic system of science is the most important

21st century: how do you summarize and evaluate the development of the public offering industry?

Fan Yonghong: in March 1998, 2 billion Southern Kaiyuan fund and 2 billion Cathay Pacific Jintai fund were announced at the same time, marking the formal establishment of China's real investment fund.

Over the past 20 years, with the rapid development of China's economy, the rapid increase of residents' wealth and the rapid development of the capital market, the public fund industry has developed healthily. The scale of the fund has achieved a great leap from 4 billion yuan in early 1998 to 17.80 trillion yuan by the end of September 2020. With the continuous innovation of fund products and the increasing variety of products, it has become an important way for the public to maintain and increase the value of wealth for a long time; investors' understanding of funds has also changed from unfamiliar, dubious to recognized and even snapped up.

Great changes have taken place in the attitude of listed companies towards funds, from the extreme exclusion of "fire and theft prevention funds" in 1998 and 1999 to actively promoting and recommending themselves to the funds, and taking pride in the fact that the funds can become shareholders of the company. The investment ability of fund managers has been continuously improved, and the long-term investment performance has been significantly improved.

Since 1223 on March 27, 1998, the Shanghai Composite Index has risen sharply and fallen sharply for more than 20 years. After the big bear market in 2008 and the substantial adjustment of the stock market in 2015, the Shanghai Composite Index has only doubled. During this period, a large number of excellent fund managers beat the market by several times or even more than ten times, creating long-term good returns for investors.

Over the past 20 years, the fund has formed a huge fund by pooling the idle funds of the majority of small and medium-sized investors, invested in those excellent enterprises and entrepreneurs, vigorously supported scientific and technological innovation, served the real economy, and promoted the healthy development of economic transformation and capital market.

The achievements of more than 20 years are enormous, which were not expected by the reformers at that time.

I remember that in 1997, the public was very unfamiliar with the "foreign product" of the fund. Even professionals had little understanding. Many people mistook the fund as a "foundation".

As a product of highly developed western capitalist market economy and credit system, fund has developed rapidly and achieved great success in developed capitalist countries such as the United States. But in the case of imperfect credit system, do people believe in a fund product without mortgage, guarantee, capital and interest? Can it develop in the emerging Chinese securities market? At that time, many people were in doubt.

In November 1997, the Interim Measures for the administration of securities investment funds issued by the State Council came into effect at a time when the Asian financial crisis was raging, Asian stock markets were in great distress, and China's stock markets were also depressed. It is under such historical conditions of internal and external troubles that the public fund opened its difficult exploration road and developed step by step in China.

More than 20 years of practice has proved that fund investors not only accepted this "foreign product", but also developed more and more mature, and fully accepted the fund income and investment risk. For more than 20 years, in the case of rigid cashing in the financial industry, there is no rigid cashing of public funds, and no fund management company has been taken over or bankrupted due to poor management, which is very rare in the history of China's financial development.

ETF is an important innovation in the history of fund development

21st century: in the 30 years of the development of China's capital market, especially in your more than 20 years of working in the mutual fund industry, which event has been most impressive?

Fan Yonghong: it has to be mentioned that ETF, which has a revolutionary impact on the fund industry, is a fund product.

By the end of September 2020, there will be 328 ETFs on the market, with a net asset value of 723.2 billion yuan, becoming one of the main members of the fund family. For today's investors, ETF has been known to everyone. However, the launch of the first ETF 16 years ago is facing many difficulties and challenges.

At the early stage of fund development, people knew little about ETF, let alone set up.

In 2000, I visited the Bank of Boston at the earliest time. We introduced the direction of ETF in the process of learning. To tell you the truth, I didn't understand the translation at that time, and I basically didn't understand it. In the evening, I invited several Chinese fund managers to dinner, because there was no language barrier, the communication was very good. One of the fund managers said ETFs could be a good thing. This is my first contact with ETF and I am deeply impressed.

In 2000, Shanghai Stock Exchange organized the development of ETF products. We are actively involved in ETF development. Although there are some studies on ETF, there is still no foundation for the specific product operation management. Therefore, we want to invite overseas consultants.

At first, state street did not want to be a bank of America. The two sides have talked many times, but they have not reached an agreement. Later, I told the Asia Investment Director of State Street bank that this product would be developed in China sooner or later. Without your support, it might be delayed for three years. If we cooperate in the development, we can come out as soon as possible, and you can also get considerable management fee share. He thought for a while and finally agreed to cooperate. In January 2004, our team was selected as the first ETF investment manager by secret ballot of the expert review committee.

21st century: what difficulties have you experienced in the process of ETF product development and what role have you played in it?

Fan Yonghong: ETF product development is complex and professional, facing many legal systems and obstacles.

As an innovative product, hundreds of problems have been encountered in the process of R & D, 55 of which have been repeatedly discussed and reached an agreement, involving product establishment, purchase and redemption, component stock trading and arbitrage.

There is no legal basis for the establishment of ETF products. As a special type of fund, ETF is not clearly stipulated in securities law and fund law. It was not until the issuance and operation details of Shanghai ETF were nearly perfect, and finally, it was solved by the special approval of the State Council. According to the opinions of the State Council, China Securities Regulatory Commission officially approved the launch of ETF in Shanghai Stock Exchange in June 2004.

In April 2004, the Shanghai stock exchange held a product demonstration meeting in Nanjing. GUI Minjie, then the assistant chairman of the CSRC, attended the meeting in person. This is a key meeting to decide the product plan of Shanghai Stock Exchange 50ETF. We put forward a comprehensive solution to the problems of ETF product positioning, product characteristics, portfolio management, accounting and valuation, which has been highly recognized by the leaders of the CSRC and the Shanghai Stock Exchange. In July, the Shanghai Stock Exchange officially confirmed us as the fund manager of the first ETF product.

It is very important to ensure the success of the product design. No matter how good the product is, it will not succeed if it is not released. With the strong support of Shanghai Stock Exchange, based on the successful experience of other countries and the characteristics of China's capital market, we first created the "stock + cash" subscription mode; investors can subscribe in cash or offline with the constituent stocks of Shanghai Stock Exchange 50 index.

On November 29, 2004, Shanghai Stock Exchange 50ETF was officially issued. Despite a lot of publicity work, the issue is still extremely difficult. The leaders of the Shanghai Stock Exchange personally took the initiative. I accompanied general manager Zhu Congjiu to visit institutional investors such as social security fund and China Life Insurance, hoping that they would give their strong support. On the last day of the issue, I visited the securities companies one by one from breakfast time at 7:30 in Shanghai, and visited the chairman or general manager of 8 securities companies, including Guotai Junan and Everbright University, hoping that they would fulfill the agreement and complete the task.

After everyone's hard work, the issuing result is better than expected. On December 31, Shanghai Stock Exchange 50ETF announced its formal operation, raising 5.435 billion yuan (including the market value of stocks), which was far more than the average amount raised by open-end funds of more than 1 billion yuan in the same period.

On February 23, 2005, Shanghai Stock Exchange 50ETF was listed on the Shanghai Stock Exchange. The launch of Shanghai Stock Exchange 50ETF is conducive to direct institutional funds to blue chip enterprises, which is of great significance to promote the healthy development of China's stock market.

21st century: how to evaluate the great development of ETF in the past two years?

Fan Yonghong: Based on the characteristics of revolutionary innovation and efficient asset allocation, ETF won the "China's best product innovation award" of "Asian asset management" in 2004, and then won many international awards.

As a major innovation in the history of China's fund development, the emergence of ETF has a revolutionary impact on the fund industry. With the continuous expansion of the scale of the stock market, there will be more and more types of ETF, and the scale of ETF will also become larger and larger. ETF will become an important member of China's fund family; there will be more and more ETF investors, especially institutional investors, and ETF will become an indispensable asset allocation tool for investors.

ETF can develop into the number and scale of today, which was not imagined at that time. Through participating in the research and development of Shanghai Stock Exchange 50ETF, we deeply realize that innovation is the driving force for the development of capital market. Innovation is risky and very difficult. Compared with technological innovation, institutional innovation is more difficult, and innovation needs to be undertaken. In the process of learning and innovation, we can learn twice the result with half the effort.

The buyer organization should keep sober from the craze

Since the beginning of this year, the issue of public funds is hot, and the amount of money is frequent. Fan Yonghong also mentioned a thrilling investment experience that year.

The bull market from 2006 to 2007. At that time, the Shanghai Composite Index rose from 1100 points to 6124.04 points on October 16, 2007, an increase of more than five times, creating numerous investment myths. Tens of thousands of investors are involved, setting off a frenzy of wealth chasing.

21st century: what are your feelings as a manager of a public fund company in this bull market? The bull market was followed by a rapid correction. How did you deal with it at that time?

Fan Yonghong: since the end of July 2006, the A-share market has been overwhelming, and the Shanghai Composite Index has continuously broken through 4000, 5000 and 6000 points. We feel that the market valuation is too high, and the fundamentals can't keep up with the pace of the stock price. The average price earnings ratio in September was 69.64 times.

When the bull galloped forward, many people felt that there was still a bull market. In the second half, it could reach 10000 points. The most representative is the theory of "the second half of the bull market", that is, the bull market has just been in the middle of the market, and now the adjustment is just the half-time of the bull market. After the Shanghai composite index broke through 6000 points, they thought that "10000 points is not a dream".

The net value of stock funds has been increasing, and the effect of making money has been enlarging. More and more individual investors rush into the fund with high enthusiasm, even "Crazy", queuing up to buy funds, and some even queue up at the bank gate in the early morning. This spectacle has been staged in major bank outlets in turn. In order to solve the problem of queuing up, the words of the planned economy era came back overnight, such as limited subscription, one-day sold out and proportional allotment.

Public opinion is optimistic, investors are more and more fanatical, a large number of funds continue to pour in, driving the market up is no longer the fundamentals, but liquidity and sentiment. The stock price is soaring, the market valuation is higher and higher, and the investment is more and more difficult. In this case, close the fund subscription? It seems that I can't get along with myself. Forced reduction? It's hard to predict where the top is in a bull market.

Since October 8, 2007, we have successively held temporary emergency meetings to discuss the market situation. With the rapid breakthrough of the stock index 5500 points, the capital may reverse at any time. Due to the high valuation, it is difficult for listed companies to support the current stock price. Once the market correction, it is very likely to evolve into a substantial adjustment, the decline will be very rapid, investors will suffer huge losses.

In order to protect the interests of fund holders, we have decided to suspend a number of fund subscription business from October 9, 2007.

On October 15, 2007, the China France Fund forum sponsored by China Securities Regulatory Commission was held in Westin Hotel, Beijing Financial Street. The general manager of the fund company and the main persons in charge of the capital market attended the meeting. At the forum, many representatives were jubilant and optimistic about the future. They all predicted that the stock market would rise. The only difference was that they did not know how much the stock market would rise.

At noon that day, I rushed back to the company. At 1 p.m., I organized a meeting of the interim investment decision-making committee to discuss the issue of substantial reduction of positions.

After heated discussion, the meeting held that the stock market bubble was serious and the valuation was obviously unreasonable; although the short-term market may continue to rise, it is very risky to hold stocks with high positions. In addition, macroeconomic data show that China's economic inflation pressure is too high, and macro-control pressure is greater. In order to protect the interests of investors, the investment decision-making committee made the decision of "mandatory collective reduction", requiring that the maximum position of all active stock funds should not exceed 78%, so as to prevent the risk of systematic decline in the stock market.

21st century: is there much resistance to decision making?

Fan Yonghong: some fund managers put forward the idea of unified mandatory reduction of positions. If the market continues to rise and the ranking of funds falls behind, how to assess the performance of fund managers? This is really a very difficult problem. After the end of the year, I do not propose to evaluate the performance of fund managers until the end of October. In this way, the worries of fund managers are dispelled. At the same time, it decided to stop the issuance of new funds and close the subscription of old funds. On October 15, the Shanghai composite index broke through the 6000 mark.

In the afternoon of the same day, all the public funds, social security funds and enterprise annuities managed by the company began to reduce their positions. The Investment Committee asked the fund managers to reduce their positions by force, and then criticized some fund managers who delayed the reduction because of various excuses, which showed the investment committee's determination to reduce positions. At the same time, it was announced again that all stock fund subscription business would be suspended from October 15.

On October 16, 2007, the Shanghai Composite Index rose 6124.04 points.

No one thought that this was the highest point in history. Subsequently, the stock index continued to fall to 1664.93 points on October 28, 2008, down as much as 72.86%, and investors suffered heavy losses. In fact, at that time, we didn't know that the stock index would peak on October 16. We just thought that the stock market bubble was too serious, mainly due to luck.

The funds we manage have achieved excellent investment performance. In 2007, our funds accounted for 3 of the top 10 returns of all active equity funds. The yield of one of the funds reached more than 200%. In particular, several super large funds with about 20 billion yuan also achieved very good results. Those fund managers who believe in the "10000 point theory" of Shanghai Stock Exchange did not bring good returns to investors. Especially in 2008, the Shanghai Composite Index fell by 65%, the average stock fund fell by 51.58%, and some funds fell more than 70%.

When the bubble burst, investors suffered heavy losses and learned profound lessons.

21st century: how to understand the contradiction between fund size and performance? What have you experienced in the market adjustment?

Fan Yonghong: the rapid expansion of fund scale poses a severe challenge to the original investment management mode. With the rapid growth of fund scale from tens of billion yuan to 300 billion yuan, how can fund managers and investment teams adapt to large-scale fund management mode? Is there any investment ability to manage such a large amount of active funds? In terms of the fund management ability of more than 50 billion funds, can they even manage more than 10 billion funds? Can you get rid of the curse of "big and mediocre"? These problems are worth thinking about.

The centralized closure of funds has never happened in the history of the fund industry. Fund managers "forced closure of the fund" lost scale, but protected the interests of investors. It is easier said than done to protect the interests of investors, especially in the face of huge interests, it is even more difficult to protect the interests of investors. Large scale is the business model of the fund, and also the "hidden rule" of the public fund. In the face of the fund's very good sales and bad investment, or even doomed to make investors lose money, should the fund scale or investment performance? To protect the interests of shareholders or investors? It is worth thinking for fund managers.

"Be greedy when others are afraid, and be afraid when others are greedy," Mr. Buffett said It's easier said than done. It is very difficult to make the decision of "compulsory collective position reduction". We should not only persuade the fund managers to accept from the heart and avoid the suspicion of investment intervention, but also bear the risk of falling performance ranking of all funds and large-scale redemption of funds. In 2007, the stock market really reached 10000 points. Who can bear the responsibility and pressure?

The great risk is not when everyone is afraid, but when everyone feels there is no risk. The stock market can not avoid bubbles, but serious bubbles are unsustainable and will always burst, whether it is the bull market or bear market in 2007 and 2008, or the extreme market in 2015. Long term investment is not always investment. How to deal with the relationship between long-term investment and value investment when the stock market bubble is serious? It is also worthy of serious consideration by every institutional investor.

The future will be the era of funds

21st century: what is the vision for the future development of China's fund industry and China's entire wealth management market?

Fan Yonghong: at the historical moment when China is facing the unprecedented changes in a century, scientific and technological innovation has been attached unprecedented importance, and the spring of science has arrived. Scientific and technological innovation and independent substitution need strong capital market financing support.

In the 30 years since the establishment of China's capital market, China's capital market is facing great historical development opportunities. First, the central government has attached great importance to "the capital market drives the whole body" and "strengthens the hub function of the capital market and comprehensively implements the stock issuance registration system".

Second, from the stock supply point of view, with the full implementation of the registration system, a large number of technology companies and new economy companies with development potential are listed on the market, which injects fresh blood into the capital market and provides more choices for institutional investors such as funds.

The third is the demand for financial management. With the end of the era of real estate investment and the breaking of rigid cashing of capital guaranteed and interest bearing financial products, the demand for wealth management is huge. As a link between savings and investment, mutual fund will play a unique and important role in the process of saving into investment.

Fourth, from a global perspective, China's GDP has grown steadily and maintained a positive interest rate under the environment of weak global economic growth and global low or zero interest rates. There is still a lot of room for international investors to allocate in China.

Fifthly, the construction of capital market infrastructure system is on an unprecedented right road. To build a sound ecology of capital market development with "system building, non intervention and zero tolerance", the capital market infrastructure construction will be more stable.

With the acceleration of legalization, marketization and internationalization of capital market, China's capital market has entered a new historical development stage. From the long-term perspective, China's capital market is optimistic. In the short term, in order to deal with the problems of excessive supply of stocks and insufficient sources of funds in the medium and long term brought about by the comprehensive registration system, it is necessary to fully consider the bearing capacity of the secondary stock market to avoid the ups and downs of the stock market. It is necessary to develop institutional investors such as funds in an unconventional way, broaden the sources of medium and long-term funds, and provide sufficient capital guarantee for the comprehensive registration system.

The development of capital market will inevitably promote the development of fund industry. The types and scale of funds will achieve a historical leap, and China's fund industry is ushering in a golden age of development. In another 20 years, China, which is a big economic country, will certainly become a big fund country. China's "BlackRock fund" and "pioneer fund" will appear, and a number of investment masters and even world investment masters will stand out. This is the era of China's fund development!

21st century: Nowadays, the Internet is playing an increasingly important role in the fund industry. What do you think of it?

Fan Yonghong: at present, the development of digital economy is magnificent and unstoppable. The once-in-a-century epidemic has accelerated the pace of digital economy development. The network effect and scale effect of digital economy make the scale and scope of digital platform expand continuously. The development of digital economy makes the service online, platform and timely.

It is gratifying to see that under the epidemic situation, more and more fund companies began to use the Internet platform to increase marketing efforts, and received good results.

In the long run, the importance of Internet channels for the future sales of public funds is increasing. First, the new crown pneumonia epidemic promotes the speed-up of Internet transformation of fund companies; second, investment advisory services will change the traditional offline fund sales ecology; third, the Internet sales platform has become the preferred choice of investors. The Internet not only provides a more convenient and efficient way of service, but also changes customers' consumption habits.

A major advantage of fund management companies is that they have a large number of long-term customer data, but the application and service of customer interaction is still very backward.

Taking the intelligent investment consultant as an example, through algorithms and products to complete the previous manual financial advisory services, customers do not need to master too much financial market knowledge to use. Relying on the big data computing system, intelligent investment advisers can provide the same investment advisory services as professional investment management experts through the combination of machine learning and user-friendly interface, so as to realize the transformation from "financial supermarket" to "customized".

Intelligent investment adviser has the obvious advantages of "private customization", benefiting ordinary investors, overcoming human nature, and greatly reducing cost. In particular, it solves the problem of interest consistency properly. Traditional sales channels obtain subscription fee, redemption fee and transaction commission according to customers' purchase, redemption and frequent transactions. There is potential conflict of interest between customers and traditional sales channels. Therefore, customers are advised to trade frequently, which leads to the phenomenon that investors "redeem the old and buy the new".

Facts have proved that frequent trading is an important reason for investors' losses. The purpose of intelligent investment adviser is not to charge Commission, not to frequent transactions, and is consistent with the interests of customers. Intelligent investment advisers will change the investment habits of investors in the past to buy a single fund variety, so that investors can enjoy the charm of asset allocation, and the quick functions of one click order setting on the Internet platform will make fund investors experience great investment convenience.

It can be predicted that the digital wave will bring about a completely new change to the public funds in terms of fund sales, intelligent investment advisory, intelligent risk control, operation, investment research management, etc. The digital age of fund has come.