The public offering market has witnessed a significant evolution with the establishment of six floating-rate funds that charge performance fees based on performance metricsAs of December 16, the performance data reveals that many of these products have appreciated by more than 38% since their inception five years agoSome of the most outstanding products have exceeded a remarkable 70% returnThis emerging trend in investment funds not only highlights the performance potential but also reveals a deep-seated transformation in how fund management engages with investors.

The key takeaway from these floating-rate funds is the alignment of interests between fund managers and investorsIndustry professionals emphasize that this coupling of incentives has the dual effect of motivating managers to enhance fund performance while simultaneously encouraging investors to take a longer-term view of their investments

As the market continues to explore related products, there is an expectation that such innovations will lead to the discovery of better mechanisms that enhance investor satisfaction and overall market efficiencyThis area of investment is still nascent, suggesting that there is vast potential for growth in the future.

Examining some specific products, we note that the first batch of these six floating-rate funds recently celebrated their fifth anniversary beginning December 18. Launched in December 2019, the six funds—Hua Tai Ba Rui Economic Return One Year, Hua An Intelligent Selection Two Years, China Europe Qi Hang Three Year Holding Period, Guo Tai Research Selection Two Years, Fu Guo Alpha Two Years, and Xing Quan Social Value Three Year Holding—have each employed a strategy of measuring performance on a per-transaction basis.

The structure of these funds is quite appealing

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They combine a foundational management fee with a performance-based fee calculated at 20% on any annualized return that surpasses 8%. This performance-centric framework has proven effective, encouraging managers to actively seek favorable outcomesAccording to the latest product summaries, which are based on recently disclosed annual reports, the comprehensive annualized expense ratios vary slightly, with figures such as 1.11% for Hua Tai Ba Rui and 1.01% for Xing Quan Social ValueThis cost-effectiveness, coupled with their impressive returns, has made these funds rather competitive in the rapidly evolving market.

As of mid-December, Guo Tai Research Selection Two Years topped the performance rankings among its peers, boasting a stunning return of 74.10%. Following closely behind, Fu Guo Alpha and Xing Quan Social Value likewise delivered returns around the 40% mark, significantly outperforming the comparable Wande equity mixed index during the same period.

Analysts note that certain funds, including Guo Tai and Fu Guo, have repeatedly surpassed their performance benchmarks between 2020 and 2023. For instance, Guo Tai maintained a high equity exposure, remaining above 90% except for a temporary dip at the end of 2021, which demonstrates its strategic agility in navigating market conditions

This approach has fostered considerable gains, particularly in sectors like medicine, new energy, and TMT (technology, media, and telecommunications).

Another significant aspect of these funds is their client retention rateRepresentatives from Guo Tai Fund indicated that the holding period for many of the floating-rate products contributes to a relatively stable asset base, which simplifies capital management for fund managersThis extended commitment from investors enhances the predictability of fund performance.

A seasoned equity fund manager from Shanghai remarked that these floating-rate products aid in fostering communication between fund managers and investorsCompared to standard active equity products, floating-rate funds show not only higher client retention but also larger average holding sizes, suggesting that holders of these funds typically exhibit a higher understanding of investment processes.

This manager also mentioned that with lower turnover rates, these funds allow longer holding times for favored assets, potentially culminating in superior returns

Furthermore, the flexible timing and allocation strategies empower managers to adjust positions more readily in response to market signals.

The recent shifts in the A-share market—marked by rapid style changes and a growing recognition of multi-asset allocations—have intensified these ongoing discussions about investment strategiesThere is a growing realization that past focuses such as dividend stocks weren't closely scrutinized enough, and that traditional strategies like convertible bonds or new issuance and investment tactics yield diminishing returnsTo achieve robust returns, a multi-strategy approach balancing risks and opportunities is becoming increasingly necessary.

The crux of floating-rate products lies in their dual incentive structure, which solidifies the relationship between fund managers and investorsAs Wang Fan, an equity researcher at Yingmi Fund Research Institute, articulated, this model not only motivates managers to leverage their skills to enhance fund performance but also guides investors towards committing to longer-term assets

This synergy is poised to channel more stable funding into capital markets, fostering a win-win scenario for all parties involved.

Industry observers point out that the nuanced management of these products cultivates distinct investment strategies that emphasize absolute returns while imposing strict risk controls and adopting a more adaptable investing styleEnhanced performance leads to higher management fees, fostering a shared risk and profit dynamic between managers and investorsWith passive investment strategies gaining momentum, active equity products need to leverage their capabilities while focusing on improving investor experiences, enhancing product uniqueness, tightening risk management, increasing transparency, and embracing technological advancements for sustainable growth.

However, representatives from Guo Tai Fund conveyed that regardless of whether the fees are floating or fixed, the level of professionalism and diligence in fund management remains consistent