Exclusive-Big Chinese fund managers cap pay, claw back excess in 'common prosperity' push, sources say

By Samuel Shen, Selena Li and Julie Zhu

(Reuters) - Two of China's leading fund managers have capped staff's annual income and will claw back any excess, five people with direct knowledge of the matter said, in the first such measure to hit the industry under a government austerity drive.

China Merchants Fund Management (China Merchants FM) told its staff last month that their annual pay would be capped at 3 million yuan ($413,297) from this year, and demanded they give back anything more than that from last year, three people said.

The clawback was due to happen as soon as this month, two of the sources said.

Bosera Asset Management also set a cap, at 2.9 million yuan, and asked staff to return any pay above that from last year, another two sources said. The move was implemented in June, one of the people said.

China's state-owned conglomerate China Merchants Group owns 100% of China Merchants FM and 49% of Bosera. Both are based in Shenzhen. The two fund firms and the Group did not respond to Reuters requests for comment.

All the sources declined to be named as the information was confidential.

The push to reduce salaries in the fund industry comes against the backdrop of China's "common prosperity" drive aimed at addressing social and income inequality as economic growth slows. The securities regulator has also tightened supervision of the sector, which is seen by some investors as reaping fat profits despite a poorly performing stock market.

According to headhunter Morgan McKinley's China Salary Guide for 2023, the base salary of senior executives and department heads in sales and investing at fund managers in China ranges between 1.6 million yuan and 6 million yuan a year.

But it is common for a senior executive or a high performing fund manager at medium-to-large-sized funds to earn anything between 10 million yuan to several hundred million yuan a year during bull markets, with some bonuses deferred into a years-long payment.

China Merchants FM is China's sixth biggest mutual fund company with 551 billion yuan in assets, excluding money market funds. Bosera is China's seventh largest fund manager with 527 billion yuan worth of assets.

'WRONG PRESCRIPTION'

Some banks have already taken similar measures as part of the "common prosperity" drive, which was launched in 2021 and has already hit dealmakers as Beijing targets what it calls hedonists and lavish lifestyles.

In a document issued on Sunday after the Communist Party's Central Committee meeting, the authorities said it would "keep income distribution and the means of accumulating wealth well-regulated" and "properly regulate" excessive incomes.

Cutting pay and benefits will make it tougher for China's $4.3 trillion mutual fund industry to attract and retain talent, industry experts said, and will provide little incentive to portfolio managers and other staff to boost performance.

Mandy Wang, an industry veteran and former head of Morgan Stanley's China mutual fund business, said shrinking margins make pay adjustment an imperative but clawing back previous years' pay "undermines the spirit of contract".

"It's the wrong prescription with strong after-effect," she said.

The clawback of last year's pay to comply with the cap would affect about 60 executives and fund managers at China Merchants FM, two of the sources said.

"Nobody going forward wants to sell the products to raise assets. We can lie flat to just keep the job because we would fear the money paid will be clawed back," a sales executive at one of the fund houses told Reuters.

($1 = 7.2730 Chinese yuan renminbi)

(Reporting by Samuel Shen, Selena Li and Julie Zhu; Editing by Sumeet Chatterjee and Miral Fahmy)