Hong Kong - Hedge Funds for the Retail Market

On the 28th of November the Hong Kong Securities and Futures Commission authorised the first retail alternative investment funds for the Hong Kong market. Two single-strategy hedge funds from JF Asset Management and one fund of funds from the HSBC stable of products have been approved by the regulators for sale to retail investors.

The single-strategy vehicles are the JF Asia Absolute Return Fund and the JF Greater China Absolute Return Fund, of which the latter is a new launch from JF Asset Management. The funds will be solely distributed by JF Funds with no intermediary sellers. The new fund will be run by Chung Man Wing, head of JFAM's China team.

HSBC could not be immediately contacted for more details on the fund of funds.

Though the magic number 3 has been widely reported in the press, the SFC has gone to great pains to let people know that there are many more applications in the pipeline. Other guidelines were issued on the marketing of hedge funds and the education of investors. The SFC has published a leaflet called 'Ten Questions to Ask before Investing in a Fund', a follow-up to 'How Much Do You Know about Hedge Funds?' published earlier this year.

The SFC has also taken this opportunity to remind intermediaries of their obligation to only recommend appropriate products to their clients.

The question for the established, boutique offshore hedge fund community has to be whether to register their current funds for the retail market.

Most of the hedge fund managers in Asia run fairly small boutique businesses. The idea of establishing the large back-office and operations departments necessary to service large numbers of clients is alien to these managers. Some service providers are beginning to provide solutions to this problem by supplying both systems and the large back-office service needed to cope with a retail client base.

Hedge funds run by long only houses with experience in dealing with many small clients, and which are already retail funds in the market, seem best prepared to move into this market.

We perceive that the majority of independent managers, rather than be in the first wave, are taking a 'wait-and-see' approach. They would like to see if the retail market buys into the concept and how much money is raised before committing themselves.