(Yicai) Aug. 22 -- Many Chinese pension fund of funds aimed at encouraging individual investors' long-term investment have faced or are facing a liquidation crisis because of weak performance and poor fundraising amid a sluggish capital market.

Five Chinese pension FOFs have announced possible liquidation since early this month, following eight others that have already been liquidated this year, while more are expected to follow.

There were 271 pension FOFs on the Chinese market as of mid-July, with the first batch of such products released in 2018, according to data from Wind Information. To support long-term investment, the government encourages fund institutions to set up pension fund products and offers tax breaks to institutions and individuals investing in them.

Most pension FOFs fail to keep or increase the value of investors' pension assets, an insider from the mutual fund industry in Shanghai told Yicai. This results in poor experience for investors holding such products, making it more difficult to raise funds for new products, the person added.

According to market rules, pension FOFs must have net assets worth at least CNY200 million (USD28 million) three years after fund contracts take effect. Otherwise, they will be liquidated and operations terminated.

At least 175 pension FOFs on the market in China had a market capitalization of less than CNY200 million as of June 30, with 62 funds having less than CNY50 million (USD7 million), Wind Information showed.

The government, media, and financial institutions must work together to increase awareness of pension financial products, encouraging appropriate allocations in personal investment portfolios to solve FOF products' difficulties, an industry insider said to Yicai.

Fund firms must also improve the design of their pension FOF products and diversify their investment strategies, the insider noted. For example, they can select target assets from a global perspective and include gold and other commodity assets with low market performance connection to stocks, bonds, and other assets to enhance the investment portfolio's overall risk resistance capacity, the person added.

Editors: Tang Shihua, Martin Kadiev