Public Fund of Funds Scale Grows Over 3 Times Within the Year, Banks Are the "Main Driver"

Is the popularity of AI·FOF hiding the risks of mismatched research capabilities and scale?

In the context of a persistently low interest rate environment, publicly offered Funds of Funds (FOFs) are becoming one of the most active sales products through bank channels. This year, the launch scale and issuance pace of new FOFs have accelerated simultaneously. In just the first three months (up to March 23), the number of newly established FOFs and their fundraising amounts have seen significant growth, with several products raising over 5 billion yuan in a single day. “Sunlight funds” are frequently seen, with banks playing a dominant role.

Industry insiders believe that banks are shifting from merely being “distributors” of FOFs to becoming “asset allocation hubs.” This change is closely related to banks’ operational pressures and is driven by the rapid transfer of funds amid the “deposit relocation” trend. Under this trend, a large amount of low-risk preference capital is expected to flow into relatively better-performing hybrid debt-oriented FOF products.

New product launches increase over threefold year-on-year

Wind data shows that as of March 23, this year, 44 new FOF products have been launched across the market, with a total fundraising of over 65.125 billion yuan, nearly 3.6 times the 14.147 billion yuan recorded in the same period last year. On average, each product’s fundraising scale has increased from 884 million yuan last year to 1.48 billion yuan.

The issuance pace of individual products has clearly accelerated. In early March, E Fund’s Ruyi Yingze 6-month holding period FOF closed its fundraising on the first day, reaching nearly 3.5 billion yuan, becoming the 10th “sunlight fund” of the year. Previously, multiple FOFs broke the 5 billion yuan mark in a single day, including Bosera Yingtai Zhenxuan 6-month holding FOF, which raised over 5.8 billion yuan in one day, with more than 20,000 effective subscriptions.

In terms of market scale, FOF funds have also seen substantial growth. As of March 23, the total size of public FOFs reached 288.514 billion yuan, nearly doubling from 148.255 billion yuan last year.

A wealth management manager at a joint-stock bank told reporters, “This year, clients’ tolerance for volatility has decreased significantly, but they still expect returns. Pure deposit products are no longer attractive enough, and they are hesitant to heavily allocate to equities. FOFs are just right in the middle.”

From the perspective of custody and issuance structure, banks dominate clearly. Among the FOF products established this year, 19 custodians are involved, with 15 being banks, including China Merchants Bank, Bank of Communications, Ping An Bank, China Guangfa Bank, Postal Savings Bank, China Everbright Bank, and Suzhou Bank. China Merchants Bank leads with over 20 billion yuan in custody assets, accounting for about 40% of the year’s issuance scale.

Specifically, China Merchants Bank, China Construction Bank, and Bank of China have successively launched “Changying Plan,” “Longying Plan,” and “Huitou Plan,” using FOF as a core tool to provide clients with one-stop asset allocation solutions.

“Previously, we recommended fund managers; now, we recommend portfolio schemes,” said a public fund FOF manager. “Banks want to front-load their asset allocation capabilities, while fund companies are more responsible for managing the underlying assets.”

From “distributor” to “asset allocation hub”

This shift is closely related to banks’ operational pressures. Amid the continuous narrowing of net interest margins, the importance of intermediary business income is rising. Since FOFs tend to have longer holding periods and relatively stable scales, they are viewed as more sustainable income sources.

A wealth management executive at a large bank said, “Relying solely on subscription fees and trailing commissions is no longer sustainable. Customers are increasingly concerned about the holding experience. FOFs help smooth net value fluctuations and reduce complaints, which is crucial for channels.”

Meanwhile, bank performance evaluation systems are also changing. The executive noted that in recent years, the weight of customer complaint rates in the assessment of financial managers has increased. Product volatility and customer experience have become key concerns for channels. Compared to direct equity investments, FOFs, with diversified underlying assets and smoother net value fluctuations, better meet the channel’s demand for “stability.”

“This capital isn’t actively seeking high-risk assets but is passively leaving deposits,” said a securities analyst. “In the current environment where the equity market hasn’t fully recovered, funds need a lower-volatility, slightly higher-yield destination, and FOFs are just meeting this need.”

From the demand side, the trend of “passive migration” of funds is accelerating. Several institutions estimate that by 2026, the maturity scale of residents’ fixed-term deposits will be about 75 trillion yuan, with approximately 67 trillion yuan in one-year or longer deposits. In the context of declining interest rates, the one-year fixed deposit rate at mainstream banks has fallen below 1.5%, with some products even lower.

CICC analyst Hu Jicong believes that FOF products, with their nested structure and ability to “solve the fund selection difficulty,” are inherently more suited to individual investors’ needs. In the current environment of low interest rates and accelerated deposit relocation, debt-oriented hybrid FOFs, as a high-performing "fixed income + " category in 2025, are expected to attract more low-risk preference capital.

Hu Jicong predicts that a large amount of low-risk preference funds will flow into “moderate-yield, risk-controlled” fixed income + funds. Among these, relatively better-performing debt hybrid FOFs are likely to continue attracting this segment of capital, driving the continued expansion of the fixed income + FOF scale.

Multiple constraints of capability, sales, and perception

Industry insiders believe that, unlike the previous dominance of active equity funds creating “blockbuster” products, the current FOF boom is characterized by its focus on low- to medium-risk, short holding periods, and diversified assets, mainly attracting steady capital from bank channels.

Most of the hot-selling FOFs are debt-oriented hybrids, with equity exposure typically controlled between 5% and 30%. They mainly hold bonds, supplemented by dividend-paying low-volatility stocks, gold ETFs, and some overseas assets. Holding periods are often three or six months, balancing liquidity and returns.

“Clients care most about two things: will I lose a lot of money, and when can I access my funds,” said a bank relationship manager. “Products with a three-month holding period are easier to explain and more acceptable.”

However, as the scale rapidly expands, the FOF market also faces multiple concerns.

First is the mismatch between research capabilities and scale growth. “Over the past two years, FOF scale nearly doubled, but the research teams with cross-asset allocation ability haven’t expanded proportionally. Except for top-tier institutions, many small and medium-sized firms’ strategies have become homogeneous, mainly focusing on ‘bond-based + low-volatility dividend’ portfolios,” said an industry insider from East China. “In stable market conditions, these strategies don’t differ much; but if market structure changes, performance gaps could widen quickly, creating uncertainty for investors.”

Second, sales-driven factors remain significant. Some industry experts point out that the current FOF popularity heavily depends on bank channels’ sales rhythm and product promotion mechanisms, rather than genuine investor demand. With insufficient information disclosure and investor education, some funds may be entered without full understanding of product features. “If the market experiences a phase of decline, redemption pressures could surge, amplifying volatility,” they added.

Additionally, some institutions emphasize the “short lock-in period” as a liquidity advantage, leading some investors to treat these products as cash management tools. This could result in insufficient risk tolerance among investors, further exacerbating market fluctuations and redemption pressures.

(Originally from First Financial)