Pinpoint Asset Management manages the China-dedicated Pinpoint China Fund. The fund was launched in June last year and currently has around US$40 million under management. The total return since inception was 45% net till the end of March 2006.

1. The Pinpoint China Fund has had a robust run since its inception in June 2005, with annualised returns of 32% for 2005 and year-to-March returns of 23% for 2006. Given the limited coverage of brokerage firms in China, does your fund tend to be long-biased? What would you estimate to be the alpha component of said returns?

   Yes, our fund is long-biased due to 1) the relative low valuation of China domestic stocks, and 2) no shorting is allowed in the domestic market. We can only short in overseas China stocks, such as those listed in Hong Kong. By the way, 50% of our fund is invested in China domestic A-share market through QFII.

   I would expect alpha component to be around 40-50% of said returns.

2. What are the typical holding period and turnover of your equity long/short fund's portfolio?

   Our average holding period is around six months. Actually, some core holdings have been in our fund since the day the fund was set up. Typical turnover is around 200-300% annualised in core holdings.

3. On a related note, in terms of opportunities for hedge funds in the region, is there not a trade-off between market inefficiencies and improved corporate governance? Do you expect deepening markets to have an adverse impact on your fund's performance down the road?

   Yes, there is definitely some trade-off between market efficiencies and corporate governance. But the China market, especially the domestic market, having just come out of a bear market last year, is still a long way to a more efficient market. Opportunities in this market are abundant.

4. What are some of the main risks currently associated with investing in the region? Could you briefly discuss how your risk management system addresses the same?

   i) Sudden economic slowdown of the China or US market or trade disputes among major global economies.
   ii) Regional political uncertainties, such as conflicts among local nations. The recent Korea-Japan dispute over islands is a typical example.
   iii) Currency fluctuation.

   Our risk management system is focused on reducing the overall risks of our portfolios, including those risks mentioned above.

   We try to limit our sector and individual stock exposure, especially those so-called hot sectors such as the commodity sector. Almost all of our holdings have very liquid trading volume, which will reduce our liquidity risk.

   We also constantly monitor our holdings and watch closely on sector news to adjust our risk exposure.

5. China-investing hedge funds have really taken off since the market-correction witnessed last October, as indicated by the performance of the Eurekahedge Greater China Hedge Fund Index (up 7% in the second half of 2005, and 17% in the fist quarter of 2006). What do you see as the main drivers for this bullish trend?

   China is a big economy and has a much diversified spectrum of sectors. More and more funds realise that and want to ride on the first mover's advantage. Also, China has a very unique business culture; as such you can see that most newly set-up funds are run by locals.

6. Recent Eurekahedge research shows a trend of growth in single-country focused hedge funds in emerging Asia, particularly China. In 2005 alone, 15 new funds with a China focus were launched, operating alongside the 28 funds as at end 2004. How does your fund maintain an edge in this environment of heightening competition?

   Our fund style is bottom-up, fundamental-driven. The consensus among the team is to deliver good and satisfactory returns to our investors while building a solid platform for those interested in China. We think investment is a life-long learning process and we are always learning from the market and our friends in the market.

7. From a hedge fund's perspective, how does the investment environment in China compare to that in other well-performing regions in emerging Asia, such as India and Korea?

   Since the stock market reform last summer, China has seen great improvement in the investment culture. Institutional investors have gradually become the dominant players in the market, which is good to the market and its participants. The Chinese government is determined to bring back the capital market in China.

   So far, the China market has not been perceived as well as other Asian markets in general. But the stock market reform last summer has provided the catalyst and growing interest can be seen in China's domestic market. The investment environment has changed very fast ever since.

8. Finally, could you share with us your short-term outlook for Chinese markets?

   Hong Kong market may see volatility in the short term due to the strong rally year to date. But the domestic A-share market has just started to experience the bull run.

Contact Details
Sunny Xuan LI
Pinpoint Asset Management
+86 21 5027 8833
sunny.li@pinpointfund.com
www.pinpointfund.com