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China’s private fund sector beset with severe losses and liquidations

Monday, July 04, 2011
Opalesque Industry Update – The once all powerful private funds sector of China is showing signs of crumbling. A study by Shanghai-based data provider Suntime Corporation showed that the sector returned an average -6.47% so far this year with a negligible 14% of private funds reporting positive results.

With the mediocre performance of China’s private funds sector, industry analysts believe that the industry has entered a new stage of development. In order to survive, the sector must introduce policies to generate consistent positive performance and convince investors with competent management.

According to a report by AsianInvestors, Chinese private funds are already feeling the pinch and have been starting to implement reforms, including the implementation of aggressive strategies and increasing concentrated positions in the A-share markets that generated stellar returns. But as the stock market corrected this year, the Shanghai Composite index fell -14% from mid-April to late June. This has only further added to the woes of the private funds sector. Although Suntime CEO Zhang Zibing described the setbacks being suffered by the private funds sector as temporary and even hinted that the industry is growing healthier. “The setback that private funds have experienced this year is temporary. In the long term, talented investment managers will continue to emerge to keep the industry growing,” he said.

Data from Suntime disclosed that this year, 322 private funds were launched with the aggregate assets under management of the sector rising to Rmb162bn as of June 20, from Rmb147bn at the end of last year.

Indeed the Chinese market is getting negative sentiments from investors particularly amongst hedge funds as of late. Last week, it was reported that hedge funds and local investors have been getting increasingly pessimistic about Greater China stocks, with the short interest on the Hang Seng Index now near a one year high.
Precy Dumlao

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