The China Securities Regulatory Commission (CSRC) has suggested implementing salary reductions of up to 50% for fund managers whose investment products either incur losses or fail to meet benchmarks by 10% or more. This initiative, announced on March 14, 2025, is part of efforts to reform China’s $4.6 trillion mutual fund sector in light of economic difficulties, such as decelerating growth, a sluggish stock market, and ongoing trade disputes with the United States, as noted by Dhirendra Kumar, Founder and Chief Executive of Value Research.
In a post on social media platform X, Kumar indicated that this proposal arises from concerns regarding disappointing fund performance, with active managers achieving an average return of 4%, compared to the CSI 300 Index’s 15%. By linking compensation to investment returns, the CSRC aims to better align the interests of fund managers with those of investors, moving away from traditional metrics such as firm size or rankings.
This measure also aligns with China’s “common prosperity” initiative, targeting income disparity in high-paying sectors like finance. Earlier in 2025, financial regulators, including the CSRC, saw 50% pay cuts to match civil servant salaries. Still, in draft form, the proposal lacks a set timeline but complements broader regulatory efforts, such as reducing fees and tightening fund oversight. While it could improve accountability, it may deter talent from the industry as China seeks to bolster its financial markets.
Also Read: China fund managers face 50% pay cut for poor performance — Here’s what’s changing
Kumar says that China’s plan to slash fund manager pay for underperformance sounds bold, but it’s a tricky beast for open-ended funds with daily NAVs.
Here’s how they might pull it off:
Benchmark Check: If a fund lags its benchmark by, say, 10% over a set period, the manager’s paycheck will suffer.
Longer Time Frames: No knee-jerk reactions to short-term dips; they’ll likely use rolling 1-, 3-, or 5-year performance windows.
Clawback Clause: Fund houses could demand refunds on past bonuses if managers consistently underperform.
Expense Ratio Tweaks: Make salaries a moving target. When NAVs drop, so does the manager’s cut.
Bonus Caps & Profit Sharing: Outperformance? Extra pay. Underperformance? Base salary, no bonus.
Regulator Watchdog: The CSRC could force firms to publish manager salaries tied to fund performance.
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