Net profit has declined for three consecutive years, China Merchants Fund steps out of its "comfort zone"

（Source: Damo Finance）

Produced by | Damo Finance

As 2025 annual reports of listed banks and securities firms enter a period of intensive disclosure, the annual performance scorecards of mutual funds held or co-invested by various financial institutions under their control are gradually coming to light.

As of April 1, more than 40 fund companies have disclosed their 2025 operating data. Among them, over 70% of companies with comparable data recorded year-on-year growth in net profit. The top 10 fund companies by net profit collectively achieved RMB 22.852 billion in net profit in 2025; compared with the same period last year, this represents an increase of about 12%.

Due to the continued recovery of market conditions in 2025, which drove fund performance scales to rise across the board, management fee income also increased accordingly. Meanwhile, in many cases when markets were at a low point, most fund companies used their own funds to subscribe to a number of equity funds; many products achieved double-digit or even doubled returns, pushing their operations to move “in tandem with the market.”

Among leading fund companies, China Merchants Fund’s operating performance is especially striking. In 2025, China Merchants Fund recorded operating revenue of RMB 5.47 billion, up 3.06% year on year. However, its parent-company attributable net profit fell by 12.84% year on year to RMB 1.438 billion, becoming the only fund company in the top-tier group to record a double-digit decline.

As a bank-affiliated public fund backed by China Merchants Bank, the “King of Retail,” China Merchants Fund has unique channel resources, and it also completed a leadership reshuffle in 2025, with both the chairman and general manager changing—advancing market-oriented reforms with full force.

But judging by the operating results, the company has not yet fully escaped the development trend of slowing scale growth and profit pressure. The challenges it encounters in its development are not only normal phenomena during the company’s own strategic adjustment period, but also reflect common issues facing bank-affiliated public funds in the process of fee reform and channel iteration.

A three-consecutive-year decline in net profit

Judging from its profitability performance, China Merchants Fund’s net profit over recent years has shown a sustained downward trend, not an accidental outcome caused by short-term market fluctuations.

China Merchants Fund once created a net profit peak of RMB 1.813 billion in 2022. But from 2023 to 2025, net profit continued to decline, standing at RMB 1.753 billion, RMB 1.65 billion, and RMB 1.438 billion, respectively. This adjustment trend over three consecutive years is extremely rare among mutual fund institutions outside the top 20 by non-money-fund scale, and also reflects the company’s不足 in profitability stability.

In the same market environment last year, bank-affiliated mutual fund firm Huaxia Fund saw net profit rise by more than 11% year on year. ICBC Credit Suisse, relying on a steady business layout, achieved a 42.5% year-on-year growth, with its growth momentum clearly highlighted. Even Bo Shi Fund—also under the “China Merchants” umbrella—achieved net profit of RMB 1.531 billion in 2025, up slightly by 0.21% year on year; its profitability stability is also somewhat better than China Merchants Fund.

On the scale side, China Merchants Fund is also in an adjustment phase. As of the end of 2025, its assets under management increased to RMB 977.2 billion—only one step away from the trillion-RMB scale. However, the growth of its non-money-fund scale was relatively slow: it grew by about RMB 40 billion for the full year, and its ranking fell from No. 9 at the beginning of the year to No. 11.

The direct cause of the continued slide in profits lies in rigid cost pressure. As a typical bank-affiliated public fund, China Merchants Fund has long relied on China Merchants Bank, its parent company, to build its business through the parent’s retail network layout. This channel advantage provided strong support for scale expansion during the early stages of industry development.

After the full implementation of the third phase of public-fund fee reforms (sales expense reform), the upper limit on subscription fee rates was sharply reduced, and upfront distribution commission revenue fell drastically. However, the bank channels did not reduce trailing commissions on existing assets at the same pace, directly squeezing profit margins that were already limited.

Structural imbalance, missing the ETF opportunity

If optimizing the cost structure is a short-term focus for profit adjustments, then balanced development of product structure and推进 the ETF business rollout are the key directions China Merchants Fund needs to break through in the long term. And behind this also lie the development genes and channel characteristics typical of bank-affiliated public funds.

In 2025, China Merchants Fund completed both the chairman and general manager changes. In May, Zhong Wen Yue took over as general manager, and in November, Wang Ying, vice president of China Merchants Bank, officially took office as chairman. This leadership reshuffle has been interpreted by the industry as an important signal that the company will strengthen coordination with shareholders and accelerate a market-oriented transformation. At present, however, the transformation results are still being released step by step and have not been fully reflected in operating data.

Insufficient product-structure balance is one of the main development shortcomings currently facing China Merchants Fund. As of the end of 2025, its bond funds and money market funds together had an aggregate scale of about RMB 750 billion, accounting for 77% of its total assets under management. By contrast, stock funds and hybrid funds—representing active management capability—together total less than RMB 200 billion, accounting for about 20%.

This structure led by fixed-income with equity as a supplement is both a result of the genes of bank-affiliated public funds and the root cause of their relatively thin profit margins.

Fixed-income products may be steady, but they come with low fee rates and thin profits. Meanwhile, equity businesses with higher fee rates have both a low share and weak performance. Of the company’s more than 100 active equity funds, in 2025 only about 20 achieved net inflows of fund units; among them, 7 were newly issued products that year. Much of the incremental volume relies on newly launched products, while existing products generally experienced outflows of capital.

As ETFs have been a core growth direction for the mutual fund industry in recent years, China Merchants Fund’s deployment pace has been relatively behind, which has also become an important factor affecting its scale and profit growth.

From 2023 to 2025, China’s ETF market entered a period of rapid development. As of the end of 2025, the ETF scale across the whole market has exceeded RMB 6 trillion, making it the world’s second-largest ETF market and also the core engine of scale growth in the public-fund industry.

But judging from the industry landscape, bank-affiliated public funds as a whole have been relatively slow in laying out ETF businesses. The combined ETF assets managed by 16 bank-affiliated public funds totaled only RMB 245 billion, accounting for less than 4.3% of the whole market. Although China Merchants Fund accelerated its ETF deployment pace in 2025 and added one-fourth of its ETF categories within a year to try to keep up with the industry’s development rhythm, as of the end of 2025 its ETF scale was only RMB 84.5 billion. It has not yet entered the “trillion-RMB club,” lacking blockbuster products at a large scale. Currently, it is still in the investment stage, and the payoff effects have not yet been fully realized.

In contrast, broker-affiliated giants such as Southern Fund have, by relying on an on-exchange trading ecosystem and ETFs with virtually no trailing commission burden, achieved both scale growth and profit growth—while the gap with China Merchants Fund keeps widening.

It is worth noting that the development adjustments China Merchants Fund is currently facing are not a common issue across bank-affiliated public funds. In institutions of the same type, many have also achieved growth against the trend. Also a bank-affiliated public fund, ICBC Credit Suisse relies on the stable business base of fixed-income and a prudent layout in institutional business, achieving 42.5% year-on-year growth in net profit in 2025. Others, such as Jianxin Fund, have controlled channel costs by effectively leveraging institutional direct-selling or low-commission channel cooperation models—by focusing on bond funds, money funds, and institution-customized products—thereby holding onto their fundamental profitability base.

After China Merchants Fund completed a management change last year, it also proposed a strategy driven by “active management + passive index” as a dual-engine model, attempting to address the two weaknesses in equity and ETFs. But for China Merchants Fund—an organization accustomed to path dependence—market-oriented transformation is a long turnaround. Whether it can reverse the trend of consecutive net profit declines is still a question the market is waiting to see answered.

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