Research On The “Rigid Redemption” Behaviors In Asset Management Business

Despite of the existence of current rules and regulations,rigid redemption behaviors still enjoy prevalence in asset management business.Through analysis on the definition,theoretical basis and causes of rigid redemption,this paper discusses various types of rigid redemption behaviors,the rationality of prohibiting rigid redemption,and how to regulate asset management business.The first chapter analyzes the definition of “rigid redemption” in asset management business under current rules.“Rigid redemption” means that in the asset management business,the asset manager and its affiliates either bear the obligation or make actual payments to compensate investors of all or part of the principal and expected returns of their investment.Specifically,rigid redemption includes both the obligation of the asset manager or its affiliates as a result of their commitment to investors or as a result of their breach of fiduciary duty,and the actual payment to the investors by the asset manager through its own funds,managed funds or affiliates’ funds.In essence,the principal and returns reaped by investors are derived from the asset manager and/or its affiliates,rather than from the underlying assets,including the profits derived,and inherent credit enhancement measures.In this regard,first of all,instead of giving a definition,current rules take an enumerative method by listing three common types of rigid redemption.Secondly,the various types of rigid redemption in current rules overlap with each other and do not include certain typical“rigid redemption” behaviors.The “violation of the principle of authentic and fair determination of market value” listed in the current rules,e.g.,is just another expression of “rigid redemption”,not a type.Further,current rules emphasize too much on “rollover” as a type of rigid redemption but ignore other breaches of fiduciary duty.The second chapter analyzes the theoretical basis of current rules to prohibit rigid redemption,on the basis of which to analyze the rationality of the purpose and means to prohibit rigid redemption.Firstly,the purpose of current rules to return the asset management relationship to the normal pattern,i.e.,“entrusted to manage money on behalf of others”,has no theoretical basis.The New Guiding Opinion on Regulating the Asset Management Business of Financial Institutions has unified the asset management relationship as a trust relationship,while “entrusted to manage money on behalf of others” is not the essence of the trust relationship.The trust relationship can be characterized by the independence of trust property,the fiduciary duty of the trustee and the special nature of the beneficiary’s rights.The independence of trust property includes the one-way independence for accountability,that is,while the trust property should NOT be responsible for the trustee’s debts,the trustee’s property needs to take the responsibility for the trust,at least theoretically.Therefore,being a supplement and protection for the trust property,rigid redemption cannot undermine the independence of trust property.In addition,since the trustee’s fiduciary duty has a characterization of arbitrary,even if rigid redemption changes the trustee’s obligation,it still does not change the nature of fiduciary duty.Moreover,most rigid redemption behaviors will not change the beneficiary’s status as a residual claimant.Therefore,the purpose of current rules is not justified.Secondly,current rules’ treatment of rigid redemption behaviors as invalid legal acts has no theoretical basis.In terms of the validity of legal acts,rigid redemption is neither a false representation nor a violation towards public order and morality.This chapter discusses the hotly debated economic risks that may be caused by rigid redemption and proves that such risks are unlikely to occur through actual practice and data.This chapter also examines current rules from the perspective of unfair competition and the interests of shareholders of asset managers and concludes that the reasons for the current prohibition of rigid redemption are difficult to stand,and that the ends and means of current rules are not justified.The third chapter analyzes the effect of current rules.Different types of rigid redemption behaviors have their own causes: the commitment type is mainly caused by interest rate regulation,investors’ low risk preference,excessive management fees and information asymmetry;the breach of fiduciary duty type is mainly due to the inadequacy of the fiduciary duty system and of the information disclosure system;other types of behaviors should be attributed to the excessive emphasis on risk in historical regulatory rules,the impact of reputation on profits of asset managers and external reasons of stability maintenance.Current rules do not attempt to address these causes,but to regulate asset management business through direct prohibition on rigid redemption.This method will not only fail to achieve the desired corrective effect but may also result in inadequate protection for investors’ interests.The last chapter makes suggestions on how to regulate asset management products based on the above three chapters.From the perspective of trust,the fiduciary duty system and the information disclosure system should be improved,especially the duty of care for investment and the property registration by trust documents.In the asset management business itself,the pricing of asset management fees should be restricted through the establishment of the investor conference system and the duty of loyalty.