On March 1, 2018, the Administrative Measures for Outbound Investments by Enterprises (??????????) (“Circular 11”) issued by the National Development and Reform Commission (the “NDRC”) went into effect. In addition to regulating direct outbound investments by Chinese companies in general, Circular 11 introduces a new regulatory framework administered by the NDRC governing Chinese companies’ sponsorship of, and investment in, offshore private equity investment funds.
Founded in 1999, Pinpoint is an Asia-based investment management firm that serves institutional investors, pension funds, private banks, fund of funds, family offices and high net worth individuals. Pinpoint Asset Management Limited was incorporated in Hong Kong on 4 Jun 2010 and regulated by the Hong Kong Securities Futures Commission for Type 9 (asset management) activities.
VL Asset Management Limited was founded in 2009 in Hong Kong by veteran investor Vincent Lam and ex-lawyer Adrian Wong. The company, being a home-grown boutique house though, has strengthened its team from two to nine members in less than seven years. Its flagship, VL Champion Fund, with a long-short equity mandate, was launched in mid-2009 and has been up and running with a loyal and steadily-growing investor base. VLAM launched an authorised fund VL China Fund in August 2015. Vincent Lam shares with Eurekahedge the fund's investment strategy.
The China Insurance Regulatory Commission (CIRC) recently issued new regulations that relax restrictions on the investment of insurance proceeds by allowing insurance capital to be used for the formation of private equity funds within the PRC. The Circular of the China Insurance Regulatory Commission on Matters relating to the Formation of Insurance Private Equity Funds (the Circular) was released on 10 September 2015 and aims to further enhance the unique advantages of the long-term investment of insurance funds, support economic development and prevent potential risks. The Circular sets out the categories, investment objectives, governance structure, management and operation and registration and regulation of private equity funds formed by insurance capital (insurance PE funds).
Along with this month’s key trends in Asian hedge funds report, we include a feature on Greater China, a region which has made headlines since late-2014. Chinese authorities have sought active intervention in the markets with a series of interest rate cuts, municipal debt-swap programs and ease of banking restrictions through reserve ratio cuts and loan deposit ratios in an attempt to inject the Chinese economy with further liquidity.
Holding 25 years of experience in trading and equity derivatives business in Hong Kong and the United States, Dr. Leung Wing Cheong, CEO and CIO at InnoFusion Capital Management discusses China’s intention to internationalise the renminbi and factors behind the fund’s success in achieving over 16% of returns in 2008.
On August 21, 2014, China Securities Regulatory Commission (CSRC), the Chinese securities regulator, promulgated the Interim Regulations on the Supervision and Administration of Private Investment Funds (the CSRC Regulations). These new regulations became effective on the same date.
For years, the Chinese private fund industry has operated in regulatory limbo, but a recent series of legislative and regulatory actions should provide greater certainty and help create a more favourable environment for the incipient hedge fund industry in the People’s Republic of China (“China” or the “PRC”). Please note that these changes, which are summarised below, apply only with respect to domestic PRC private funds, although non-PRC private fund managers may wish to bear them in mind as they seek to access China’s burgeoning investor base.
There is no comprehensive legal or universally accepted definition of ‘hedge funds’ in China. Generally, they share certain common characteristics, including: being privately offered; requiring investors to have a certain minimum net worth and/or level of financial sophistication; investing in equity securities, fixed income securities, derivatives, futures and other financial instruments; having a perpetual term; imposing liquidity restrictions on investors’ capital; pursuing absolute return rather than measuring investment performance in relation to a benchmark; compensating managers with incentive fees; allowing considerable flexibility in investment strategies; being highly leveraged; and being subject to limited regulatory supervision.
Marko Ho is in charge of all investment decisions of the fund as Legends Asset Management’s CIO. Being the general partner he is also responsible for the firm's strategies definition and execution. He has over 10 years of investment experience in HK/China markets. Prior to establishing the firm, he was a portfolio manager of Societe Generale Asset Management (SG Asset Management). During his time at SG Asset Management from 2008 to 2010, his China fund which focused on small-mid caps was consistently ranked at top 3 in Greater China universe. Before joining SG Asset Management, Marko worked at a hedge fund - Quam Asset Management, where he was an Assistant fund manager/Senior research analyst initialising the long/short strategy in HK/China, A and B share markets. Mr. Ho holds a Bachelor of Business Administration (Hons) degree from The University of Hong Kong. Before joining the investment industry, he had many years' experience in running a manufacturing business in China.
The Shanghai Municipal Government Financial Services Office (FSO) is preparing to launch the Qualified Domestic Limited Partner Program (QDLP), a pilot program that will permit qualifying foreign hedge funds to raise RMB-denominated funds in mainland China. Under current law, domestic investors are not permitted to invest in foreign hedge funds without certain government approvals that are difficult to secure. The new QDLP measures are significant in that they will, for the first time, open the China market to fundraising by foreign hedge fund managers. Following implementation, QDLP is expected to have a major impact on international fund managers that are interested in China’s sizeable institutional market.
Since December 2002, foreign institutional investors have been permitted to invest in China A Shares listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange through the Qualified Foreign Institutional Investor (QFII) programme. The QFII programme allows licensed foreign investors to invest in China A Shares in the local currency provided that certain minimum criteria are met. The return on the investment, including dividends and capital gains, can be legally exchanged into foreign currency and repatriated
Central Asset Investments (CAI) is an Asia focused multi-strategy investment firm licensed by the Securities and Futures Commission (SFC) in Hong Kong. Founded in April 2005, the firm is headquartered in Hong Kong with a research office in Shenzhen, China. The CAI team consists of 17 professionals working across portfolio management, research, risk management, operations, and investor relations.
The last 12-18 months have seen a dramatic rise in cleantech investments involving China. According to a Cleantech Group report issued in January 2010, Chinese companies raised $331 million in 2009 in venture capital investment in eight sectors: energy generation, materials, transportation, recycling, agriculture, energy efficiency, energy storage and wastewater. Nearly half (47%) of all the cleantech companies that went public worldwide in 2009 were in China.
Managed by Cypress House Asset Management Company, the China Dragon Engine Fund employs a long/short equity strategy, investing in Hong Kong markets and Chinese enterprises that are highly related to China's economic growth. Its CEO, Xiaobo Long reveals the fund's investment strategy in this interview.
Hedge funds investing in the Greater China region are still reaping the benefits of the long China story and new funds are entering the market in droves. Sources say that the number of existing hedge funds has doubled in the region with total assets under management increasing by more than 100% in the past few years.
China is one of the strongest and fastest growing economies in the world, as confirmed by the 2006 figures released on 25 January 2007. These figures from the National Bureau of Statistics confirmed that the country has continued on its growth track of over 10% growth for the last four years by registering a 10.7% growth in 2006, surpassing the 10.5% predicted by officials. This most recent rise is credited primarily to investments and exports.
Value Star is an asset management company focusing on investments based in the Greater China region, with its research team based in Beijing. Value Star runs a long/short strategy focusing on Greater China, with an AuM of US$20 million.
Hedge fund managers contemplate the effects of China’s nouveau riche consumer, and where income disparities might ultimately lead the People’s Republic.
With first-quarter GDP growth estimated to be possibly as high as 12-15%, China continues to experience a spectacular secular phase of growth comparable to that of Japan in the 1970s and 1980s. Hedge fund managers are considering where China’s markets go from here.
Judging by the number of conferences and other events focused on them in recent months, the emerging market hot spots for hedge fund investment are China and India.
They seem like logical plays - two enormous countries, each with more than a billion people, rapid growth and a fast-rising upper and middle class.
There should be, and indeed are, a wealth of opportunities to be taken in these growing economic powers - both in terms of investment opportunities and potential new hedge fund investors. But there are also a number of barriers to jump and risks to assess before doing so. This has become particularly evident this week, as the Indian exchange fell 4.2% on Monday amid a worldwide downturn.
Monster transactions in China have recently monopolised the private equity headlines. Is the opportunity worthy of the hype? Despite many risks, a combination of liberalisation and investor innovation is widening the scope of possible activity, giving investors new ways to tap China’s growth story.
Of the US$20 billion invested in Asian private equity transactions in 2005, US$5.75 billion was spent in the People’s Republic, and that inflow is weighted towards the leviathans.
The most visible effect of the recent revaluation of the RMB was a dramatic increase in the volume of macroeconomic ramblings from financial analysts globally, and a rash of "special bulletins" in our in-boxes.
Our summary is that the revaluation is at the same time immaterial and massively significant. It's immaterial in that it was expected, it was small, and has few discernible short-term effects. It's massively significant as it's the watershed point at which the PRC begins its transition to the world's largest economy, by engaging with global capital markets.
China's funds industry is in its infancy. Since the introduction of the regulated funds regime by the China Securities Regulatory Commission ("CSRC") in 1997/98, China has experienced an unprecedented growth in its funds industry, as shown in the diagram below.
Dynasty Asset Management Ltd was established by Steve Dai and Edward Mullen in 2000. The firm is one of the earliest alternative investment managers to set up operations in Shanghai. It manages two funds - the Dynasty Fund and the Dynasty China Opportunities Fund. The former has generated average annual returns of 38.5% since inception (February 2001) and -4.72% year-to-date, while the latter was launched this year and has generated returns of -2.72% since January.
In December 2002, Mainland China introduced the Qualified Foreign Institutional Investor (QFII) scheme which allows for the first time the entry of foreign investors into the domestic A-share market. The first QFII investment took place in July 2003. With the QFII scheme in operation, there is an increasing discussion of a corresponding mechanism for overseas investment by domestic investors ¾ a Qualified Domestic Institutional Investor (QDII) scheme. It is believed that this could help utilise China’s large foreign exchange reserves and domestic foreign exchange savings, thereby helping to maintain a better balance on the capital account.
CITIC Capital China Plus Fund, launched in August 2003, is a Greater China equity long/short fund that aims to achieve long-term, consistent capital growth, by investing in listed securities whose performance is linked to the economic growth of the Greater China region.
After the disastrous market conditions in 2000 and the first nine months of 2001 pushed Asian hedge funds down, the last quarter of 2001 proved a nice rebound for the industry. Managers made money throughout the region, from playing the falling yen in Japan (either outright US dollar long or purchasing exporters) and buying bank shares in Korea, to domestic plays in Southeast Asia and Hong Kong/China.