China probes ‘blind box’ funds for contract compliance

SHANGHAI (Reuters) – China is probing “blind box” funds to ensure that investment positions are in compliance with the stated contractual terms, the China Securities Journal reported on Thursday.

The news comes as chaotic scenes erupted at the headquarters of cash-strapped developer China Evergrande Group in recent days as disgruntled investors crowded its lobby to demand repayment of loans and financial products.

Such “blind box” funds — those that are opaque or have been misnamed — have led to investor losses as money has been invested in sectors not set out in the fund agreement, as per the report.

There is a view in the industry that making money for investors is the most important thing and that the means used to do so are irrelevant, the paper said.

“Regulatory authorities were concerned about the issue of funds’ ‘style drift’, especially for fund products that have a high degree of market attention and involve many holders,” the paper reported, quoting a person from a Shenzhen fund company.