On The Daily Organization Of The Public Security Investment Fund

The law relationship of mutual funds in essence is the trust legal relationship, the fund holders are the trustors and beneficiaries. The fund manager and the fund custodian are selected by the unit holder meeting; they are trustees and fulfill their own fiduciary duties. The fund manager has the exclusive power to operate the fund assets, so it is in the center position of the mutual fund trust law relationship. Based on this, laying restraints on the fund manager is the main content of the fund legislation.The unit hold meeting is the supreme decision-making body in the fund and the institution for the trust beneficiaries to exercise their common rights, so it is the best interest representative of the fund holders. As a matter of fact, its way of conference can’t form an effective restriction to the fund managers because of the "rational indifference" and the "hitchhike psychology" of the fund holders.For this reason, the law on funds for investment in securities introduced the daily agency of the unit holder meeting and conferred it a series of authorities to supervise in2013. The function of the daily agency is to supervise the fund manager by the legal rules and the fund contract and to provide simplicity information for the fund holders to make a decision.The daily agency is agent of the unit holder meeting, and it does not have the right to make decisions. The unit holder meeting is the only decision-making institution. The daily agency only has the procedural right and its operation principle is to maintain balance between the interest of the fund holders and the efficiency of the fund manager. So its authority should be guaranteed and limited.The principle-agent relation between the daily agency and the unit holder meeting belongs to fiduciary relationship, exerting the faith obligations on the daily agency is a method to solve the principle-agent problem. The daily agency should have high degree of independence and some professional knowledge about the securities investment funds.From the perspective of supervision, the daily agency should have the right to know all the information about the fund investment, including the basis of it. At the same time, the daily agency shall not use the information to do illegal practice, for example of insider trading.The daily agency should exercise its supervisory authority indirectly, even the investment operation is obviously illegal or breaches the fund contract, it has no right to correct directly.The elastic compensation mechanism links the compensation of the daily agency and the monitoring results, sharing large amount of units will improve the activeness to supervise and the liquidated damages clause is the legal consequence.