Another initiated fund of funds (FOF) has failed to meet the critical three-year benchmark.

On June 12, Bohai Huijin Securities Asset Management Co., Ltd. announced the termination of its Bohai Huijin Preferred Balanced One-Year Holding Hybrid (FOF) fund. The termination was triggered because the fund's net asset value fell below 200 million yuan after the fund contract had been in effect for three full years, activating an automatic termination clause.

Enduring Operational Viability Under Scrutiny

This case has once again drawn market attention to the survival pressures facing initiated FOFs. According to relevant regulations, an initiated fund's contract will automatically terminate three years after its effective date if its net asset value is below 200 million yuan. Compared to regular funds, initiated funds have a relatively lower threshold for establishment, as fund managers can use their own capital, shareholder funds, or other sources as seed money for the initial subscription. This reduces the product's initial reliance on external fundraising, but the scale assessment at the three-year mark determines whether the product can continue operating.

It is noteworthy that since 2026, there have been signs of recovery in FOF issuance, with the total issuance share already surpassing that of the entire previous year. However, concurrently, some existing initiated FOFs have successively triggered liquidation due to insufficient scale, creating a situation where "issuance recovery" and "existing product clearance" coexist in the industry.

A senior analyst from Morningstar (China) Fund Research Center noted in an interview that among the over 60 initiated FOFs established in 2023, more than ten have already triggered automatic liquidation due to their net asset value falling short of 200 million yuan at the three-year mark. Among the remaining products awaiting assessment, many also have fund sizes below the 200 million yuan threshold.

While FOF products offer advantages such as multi-asset allocation, fund selection, and risk diversification, if a product lacks channel support or demonstrates unsatisfactory performance after launch, its scale can easily remain at a low level for an extended period.

The analyst explained that for FOF products, an excessively low scale can constrain development. For instance, if a fund's size is only tens of millions of yuan, fixed costs for operations, custody, and information disclosure are difficult to amortize effectively, leading to relatively high unit operating costs. This makes it challenging for the manager to allocate dedicated investment research resources, and sales channels lack motivation to promote it. Furthermore, small subscriptions and redemptions can disrupt the underlying portfolio allocation, increase rebalancing costs, and make it difficult to sustain outstanding long-term performance, hindering the accumulation of market reputation.

The analyst further stated that for conventional public FOFs, 2 billion yuan is not only the statutory survival threshold for initiated funds but also the basic level needed to attract external capital beyond relying solely on the company's own purchases. Only by crossing this line can a fund have the opportunity to initiate a virtuous cycle where scale, resources, performance, and reputation reinforce each other.

Enhancing the Investor Experience is Crucial

From a distribution channel perspective, FOFs are not without market potential. In the context of a low-interest-rate environment and the transformation of wealth management, FOFs—which possess multi-asset allocation capabilities, volatility management skills, and portfolio solution attributes—still hold a differentiated competitive advantage.

A public fund product operations manager at Shenzhen Paipaiwang Fund Sales Co., Ltd. stated that compared to "fixed income plus" products, FOFs offer more systematic multi-asset diversification and volatility management and can break through the limitations of a single asset class. Compared to passive index products, FOFs provide allocation solutions rather than single tools. Compared to actively managed equity funds, FOFs can smooth net value volatility through portfolio construction, reducing the difficulty for investors in selecting funds and timing the market themselves, which also helps alleviate the holding pressure on retail clients.

However, for FOF products to truly gain traction in distribution channels, they must better address investors' multiple concerns regarding performance stability, fee structures, and the overall holding experience. The manager believes that on the product side, designs should be tiered according to different risk preferences to avoid homogenization. Regarding fees, fee arrangements could be explored and optimized within regulatory compliance to enhance investor satisfaction.

Distribution channels also need to shift from "selling products" to "providing allocation solutions." The manager suggested that, on one hand, relevant institutions could customize products based on reverse client profiling. On the other hand, they should strengthen investor engagement, clearly communicate the operational logic and fee details of FOFs, and combine them with strategies like regular investment plans and scenario-based holding solutions to guide clients toward long-term holding, thereby improving the product's sustainability.

An industry professional from a public fund company noted that the first three years after an initiated FOF's launch represent a "golden window period." The key is to clearly define the product's risk-return characteristics and keep net value fluctuations within a range acceptable to investors.