In a poignant reflection of the current state of financial markets, yet another fund designed for initiation has succumbed to the fate of being liquidated three years after its establishmentThe Tianhong Xinzheng Hang Kong Shen Technology Leader Index Fund, managed by Tianhong Fund, has recently published a liquidation report, marking the end of its lifecycleIn a landscape where investment fortunes can turn on a dime, this fund serves as a stark reminder of the volatility that characterizes the investment universe.

After launching with an initial capital base of over 21 million yuan, the fund's automatic termination was triggered because it failed to scale up to the critical threshold of 200 million yuan within three yearsThis contraction illustrates the challenges faced by initiated funds, especially those that rely on passive investment strategies, such as the Tianhong fund, which aimed to track the performance of the CSI Hang Seng Hong Kong Technology Leader Index.

This index is characterized by its focus on technology companies that exhibit significant market capitalization and a robust presence in their respective industries

Unfortunately, the Tianhong fund was ensnared by the turbulence affecting the technology sector, struggling to regain a net asset value exceeding 1 yuan before its collapseSuch performance—or more accurately, lack thereof—highlights the impact of market dynamics on even the most promising investment vehicles.

Established in 2004, Tianhong Fund has amassed an impressive public fund management scale of 1,195.724 billion yuan as of the end of the third quarter of this yearThis firm, which gained notoriety in the investment community particularly after launching the highly popular Yu’ebao money market fund in partnership with Alipay, has seen its fortunes wax and wane in accordance with market trendsDespite its extensive portfolio of passive index products, the firm’s foray into initiated funds has not produced the desired results.

The very nature of initiated funds, which often come with lower barriers to entry, can paradoxically become their Achilles' heel

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The Tianhong fund, instead of capitalizing on opportunities within the three-year window it had—functioning in a comparatively lenient regulatory environment—failed to bolster its size adequatelyThis raises the question surrounding not just the capital investments, but also the efficacy of the marketing strategies deployed in promoting such funds.

As disclosed in the liquidation report published on December 3, the fund's timeline was stark: it entered the liquidation process on October 27 due to its inability to reach the 200 million yuan threshold by the three-year mark, effective from its contract signing dateAn examination of the fund's trading activities prior to its impending liquidation reflects a complete liquidation of its financial assets by October 31, underscoring the rapid descent of what was once deemed a hopeful investment.

In accordance with the fund's prospectus, it tracked an index comprised of 50 major technology firms listed in both the mainland and Hong Kong, showcasing leaders known for high R&D investments

Highlighted within this index are major players such as Meituan, Xiaomi Group, and Tencent Holdings, which collectively held over 31% of the top weight in the index as of early DecemberHowever, the index itself has remained relatively niche, with only a handful of funds tracking it—an indication of limited market interest and engagement.

Looking back at the timeline, it is worth noting that the Tianhong fund was officially founded on October 26, 2021, with 2,935 subscriptions contributing a total of 21,679,700 unitsAmong these, a considerable portion came from the fund management's own capital, with over 1,000,000 units purchased, representing a significant 46% of total contributionsThis level of investment commitment was paired with a promise to hold for a minimum of three years—a commitment that ultimately led to disappointment.

Despite well-structured strategies aimed at limiting tracking error—aiming for an annual deviation of no more than 4%—the fund's performance has reflected the broader struggles of its sector

As per the latest updates from Wind, the fund's net value hit 0.79 yuan, representing a loss of over 20% since inceptionDuring the same duration, the index it sought to replicate exhibited a disheartening decline of -23.3%.

After several changes in fund management since its inception, including the introduction of a new manager just days after launch, the fund continued to stagnate during its first two years despite visible, albeit marginal, increases in its assets managed in the latter half of this year, which peaked at a mere 85 million yuan.

Industry insiders have emphasized that, typically, fund companies employ extensive market research and demand analysis prior to product launchesHowever, resulting market conditions can be unpredictable, leading to instances where certain funds underperform post-launch, ultimately resulting in reduced capital levels

Such a predicament is not unique to Tianhong but resonates across the initiated fund landscape.

Liquidation remains a reluctant yet necessary move for many fund companiesIf a product is judged to have a probability of future growth, companies might explore avenues to save the fund from closureYet, when facing persistent market downturns and a narrow outlook for growth, firms may opt to reduce expenses through liquidationInsufficient scale, especially when faced with dim marketing prospects, diminishes the chances of an initiated fund's survival.

The Missed Opportunity for Hong Kong Tech Stocks

The fate of the aforementioned initiated fund can also be attributed to broader market trends, specifically within the Hong Kong tech sectorBetween October 26, 2021, and October 25, 2024, the Hang Seng Tech Index recorded a staggering decline of -32.72% while the CSI 300 Index performed slightly better at -20.55%. The Hang Seng Tech Index faced prolonged periods languishing below the 5,000-point mark, with sharp dips providing little relief for investment vehicles associated with it.

Conversely, recent sentiment towards the Hong Kong tech sector has taken a more optimistic turn, especially following adjustments made to the Hang Seng index since October 8, indicating that valuations are on the lower end historically

According to finance professionals, the valuations of the Hang Seng Tech Index have reached a relative low point, presenting a high safety margin for potential investments.

Experts argue that certain technology stocks within the Hang Seng index, which include many Chinese "unicorns," are expected to demonstrate stable or even growing earnings in the long term, driven by strong fundamentalsEnhanced market sentiment, along with policy support and economic recovery expectations, has fostered conditions favorable for a prospective rebound in the technology sector.

As the market sentiment around Hong Kong tech stocks continues evolving amid predictions of a recovery and potential industrial advancements, outlooks for tech stocks have dramatically improved, suggesting a possible revaluation driven by growth in terms of corporate performance.

Tianhong's Investment Philosophy

In conclusion, Tianhong Fund itself, founded in 2004 and with current operations managing over 1.19 trillion RMB in public funds, operates on the philosophy of grounded investment strategies

The firm has certainly faced challenges, with initiated funds not performing to expectationsYet, Tianhong remains committed to its vision of evolving its fund offerings for future growth opportunities.

As it stands, the performance of its flagship money market fund, Yu’ebao, is a testament to its strategic choices, having achieved an astounding scale of 763.648 billion yuanIn contrast, its other actively-managed stock products lag behind in relative standings, underscoring the firm’s concentration on broader investment outcomes.

In summary, while the challenges surrounding initiated funds like the Tianhong Index Fund may cast a shadow on the wider investment landscape, they also illuminate the intricacies and unpredictability of market forces that can weigh heavily on even the most ambitious financial ventures.