China Hedge Fund Association holds inaugural event
07 Sep 2012
Executives from the China hedge fund industry gathered last Saturday for the Hedge Fund Association China Chapter's first event - a symposium on the role of foreign HFs in China held at the Cheung Kong Graduate School of Business (CKGSB) in Beijing.
The event was hosted by Adam Steinberg, head of the HFA China Chapter, and included a panel discussion with Professor Li Haitao, Visiting Professor of Finance at CKGSB, Oliver Barron, Head of the Beijing Office of NSBO, an financial market information provider, and IPA's Iain Mills.
Among the themes discussed were recent policy developments, the potential risks and challenges associated with hedge funds in capital markets; ways for foreign hedge funds to cooperate with Chinese managers in terms of R&D or back-office development; structures to develop the HF community in China, and the need to demystify HFs and explore a model for their development suited to local conditions.
In a sign of growing interest among institutional investors, CICC is lining up strategic partnerships with Sloane Robinson and Brevan Howard. Everbright Capital Management has made moves into the HF space, seeding three funds over the summer, and is looking to broaden its use of HF strategies in the future.
Another notable piece of news reported in the state media is that so-called ‘Sunshine Funds' - domestic funds that use a trust platform to broaden their range of investment choices - may be allowed to list in Shanghai. The legitimisation of Sunshine Funds - which are, despite their name, in fact often rather opaque entities - may be able to play a role in making Chinese capital markets less vanilla and offering local investors access to a broader range of hedging strategies.
Perhaps most eye-catching is the proposed Qualified Domestic Limited Partner (QDLP) scheme, which would allow foreign HFs to raise RMB-denominated capital in Shanghai to be invested offshore.
Reports suggest QDLP has cleared some regulatory hurdles, although industry players were divided on the precise timeline for implementation. In any case, given the scheme is likely to be launched with an AUM threshold of $5bn or even $10bn, it's clear that only the largest global players will be involved and smaller foreign HFs will have to look for opportunities in other business areas for the short term.
Moreover, given the overall development of China's capital markets, not to mention poor stock market performance in recent years, it is clear the regulators will exercise extreme caution regarding the development of China's HF industry. However, given recent policy signals and a growing interest in alternative strategies among Chinese investors, there is clearly potential for a more robust discussion of the risks and opportunities associate with HFs in China.
"Beyond the headlines, it's important to build the "ecosystem" of China's HF industry," Adam Steinberg said at the symposium. "These are exciting times in the space, and I hope the HFA China chapter can help move the dialogue forward."
Author: Iain Mills