HuaBao Fund Faces Lawsuit from Former Fund Manager Over Dismissal Following Severe Underperformance
A high-profile lawsuit has thrown a spotlight on the immense pressure and high-stakes consequences within China’s mutual fund industry. Former HuaBao Fund manager Chen Long (陈龙) has taken his erstwhile employer to a Shanghai court, alleging wrongful dismissal after presiding over portfolios that suffered losses approaching 50%. The case, set for hearing in January 2026 at the Shanghai High People’s Court, encapsulates the brutal reality of performance-driven mandates in the world’s second-largest asset management market and raises critical questions about the responsibilities shared between fund houses and their investment professionals.
Key takeaways from this developing story include:
– A former HuaBao Fund manager is suing the firm over his dismissal, with court proceedings scheduled for early 2026.
– The manager’s tenure was marked by severe underperformance, with the two funds he managed recording losses of -46.75% and -54.80%.
– Both funds have seen a dramatic reversal in fortune since his departure, with one surging over 60% in 2025 under new management.
– The case exposes the intense performance pressures, thematic investment risks, and complex labor dynamics within China’s 4 trillion USD public fund industry.
– It serves as a stark reminder for investors to scrutinize not just fund performance, but the stability and support structure of the fund management team itself.
The Lawsuit: A Fund Manager’s Challenge
In an unprecedented move for China’s normally discreet asset management sector, a labor dispute has escalated to the courts. The plaintiff, identified as Chen Long, has filed a lawsuit against HuaBao Fund Management Co., Ltd. alleging wrongful termination. The case, registered as a labor dispute, is scheduled for its first hearing on January 19, 2026, according to official court records.
Tracking the Career of Chen Long
Public data aligns the plaintiff with a former HuaBao Fund portfolio manager of the same name. Chen Long joined HuaBao Fund in September 2018 as a senior analyst. His career trajectory saw a significant promotion in 2021 when he was appointed fund manager of the HuaBao Green Theme Mixed Securities Investment Fund on September 2, followed by the HuaBao Competitive Advantage Mixed Securities Investment Fund on December 21 of the same year. His tenure on both funds, however, was short-lived. He was removed from the Green Theme fund in April 2024, coinciding with its liquidation due to assets persistently falling below regulatory minimums. Subsequently, he was formally dismissed from the Competitive Advantage fund on November 2, 2024, with the company citing “business adjustment” as the official reason for his departure. This sequence of events forms the basis of the legal challenge, putting his fund manager performance and the grounds for his dismissal under judicial scrutiny.
Analyzing the Performance Record
The core of this dispute inevitably revolves around the investment results achieved during Chen Long’s stewardship. A review of the data reveals a period of profound difficulty for the funds under his management.
A Tale of Two Funds: Deep Losses and Eventual Turnaround
Performance data paints a stark picture. During Chen Long’s management period, the HuaBao Competitive Advantage Mixed Fund generated a cumulative return of -46.75%. The performance of the HuaBao Green Theme Mixed Fund was even more dire, plunging -54.80%. Both figures ranked near the very bottom of their respective peer groups. The Green Theme fund’s assets dwindled to approximately 10 million yuan (about 1.4 million USD) before its eventual liquidation—a clear sign of massive investor redemptions driven by poor returns.
This fund manager performance stands in dramatic contrast to the fortunes of the funds after his exit. The HuaBao Competitive Advantage Mixed Fund, in particular, has experienced a remarkable resurgence. From the start of 2025 through available data, the fund has delivered a stellar return of 63.07%, placing it in the top decile of its category. Its asset base has swollen from 1.82 billion yuan at the time of Chen Long’s departure to 2.85 billion yuan as of September 30—a growth of 56.59%. This dramatic reversal is attributed to a strategic pivot by the current manager, Shi Jian (石坚), who co-managed the fund with Chen for 13 months before taking sole control. Shi Jian sharply increased allocations to the domestic semiconductor sector, which has been a major market winner.
Thematic Bets and Market Timing: A High-Risk Strategy
Chen Long’s investment strategy offers crucial context for his fund manager performance. His portfolios were heavily concentrated in high-growth, high-volatility thematic sectors, notably green power (绿电) and semiconductors. For several years leading into 2024, these sectors faced significant headwinds, including policy adjustments, supply chain disruptions, and intense competition. This concentration magnified losses during the market downturn for these themes.
The subsequent rebound underscores the critical role of market timing and sector rotation in thematic investing. Beginning in late 2024, the very sectors that caused the losses—semiconductors, green energy, and domestic substitution equipment—experienced a powerful collective rally. The case thus becomes a textbook example of the perils of maintaining a rigid thematic focus through a prolonged sector winter without adequate risk controls or tactical adjustments. The successor manager’s decisive shift in allocation to ride the new uptrend highlights how a change in strategy, rather than just a change in person, can alter a fund’s destiny.
Broader Implications for China’s Fund Industry
This lawsuit transcends a single employer-employee conflict. It strikes at the heart of several systemic issues within China’s rapidly growing yet competitive asset management landscape.
Performance Pressure and the “Up-or-Out” Culture
The Chinese mutual fund industry, with nearly 27 trillion yuan (approx. 3.8 trillion USD) in assets under management, operates under intense scrutiny. Fund managers are under constant pressure to deliver short- to medium-term results, with rankings published frequently. A prolonged period of underperformance, especially of the magnitude seen here, almost invariably leads to replacement. This case formalizes a typically behind-the-scenes process, asking the court to rule on whether such performance-based dismissal was legally justified or constituted a wrongful termination. It challenges the industry’s prevalent “up-or-out” culture and could set a precedent for how employment contracts and performance clauses are structured and enforced.
Governance and Investor Communication
The case also raises questions about fund house governance and transparency. HuaBao Fund’s official response to media inquiries has been limited. When contacted, customer service representatives stated they were only responsible for fund咨询 (consultation) and were unaware of the situation, directing questions to a general email address from which no reply had been received at the time of reporting. For institutional and sophisticated investors, clarity on internal risk management, decision-making processes, and personnel stability is paramount. This incident may prompt investors to demand greater insight into how fund houses support or intervene with struggling portfolio managers before reaching the point of dismissal and litigation.
HuaBao Fund in Transition
The lawsuit emerges during a period of leadership transition for HuaBao Fund itself. Founded in 2003 as one of China’s first Sino-foreign joint venture fund management companies, HuaBao is a significant player, ranking 28th by management scale with 379.1 billion yuan in assets as of September. In August of this year, Xia Xuesong (夏雪松) assumed the role of Chairman, taking over from Huang Kongwei who stepped down due to age. Xia Xuesong brings a background from giant state-owned enterprise Baowu Steel Group and its listed subsidiaries. Navigating this high-profile legal challenge will be an early test for the new leadership, balancing legal strategy, human resources policy, and reputational risk management.
Investment Takeaways and Forward Look
For global investors allocating to Chinese equities through actively managed funds, this episode offers several critical lessons. First, it reinforces the necessity of looking beyond past returns to understand the investment process, risk concentration, and the potential for personnel change. A fund’s historical fund manager performance is intrinsically linked to the individual making the decisions; their departure can signify a complete strategy overhaul, as evidenced by the dramatic turnaround at the Competitive Advantage fund.
Second, it highlights the volatility of thematic investing in China’s policy-driven markets. While themes like semiconductors and green energy offer substantial growth potential, they are also prone to sharp cycles. The competence of a fund manager lies not just in identifying long-term themes but in navigating their interim volatility.
Finally, the lawsuit itself is a milestone. Its progression through the Shanghai court will be closely watched by the entire financial industry. A ruling could clarify the legal boundaries of performance-based employment termination in a highly results-oriented profession. It may encourage more standardized performance evaluation frameworks and contractual terms between fund houses and their star portfolio managers.
In conclusion, the case of Chen Long versus HuaBao Fund is more than a labor dispute; it is a microcosm of the pressures, risks, and human capital challenges within China’s dynamic fund management industry. It underscores that stellar returns and deep losses are often two sides of the same coin in high-conviction investing. For investors, the key takeaway is to prioritize due diligence on the stability and support system of the investment team managing their capital. As the case moves toward its 2026 court date, the industry will be awaiting a verdict that could reshape the rules of engagement for China’s fund managers and the houses that employ them.