Asia Pacific Intelligence

The View From Beijing - Our on the scene report from the inaugural hedge fund symposium in China

Monday, October 08, 2012

Adam Steinberg, director of the Hedge Fund Association's China chapter, and senior project manager for New Alliance Consulting International reported to Asia Pacific Intelligence on the inaugural hedge fund symposium in Beijing, held at the beginning of September at the Cheung Kong Graduate School of Business (CKGSB).

Steinberg says: "Around 40 people turned up for the event and in addition to the several CKGSB MBA students in the audience, we had strong representation from the very small hedge fund community in China, including Pine River Capital; Hillhouse Capital; Man Group; China Investment Corporation (Absolute Return Group); Efficient Capital Management; JP Morgan Asset Management and CICC."

Of these firms, Pine River Capital is the only US hedge fund doing trading research from mainland China, having built a team of about 10 quantitative researchers in the country.

The three panellists at the session were:

Professor LI Haitao: Visiting Professor of Finance at CKGSB, Professor of Finance at The Ross School of Business, University of Michigan
Oliver Barron: Head of Beijing Office for NSBO, a London-based market research and advisory firm
Iain Mills: Beijing-based reporter for Investments & Pensions Asia and an advisor to global hedge funds

Steinberg, who moderated the discussion, said that it focused on three of the "hottest" topics with regards to hedge funds in China: QDLP; QFII and Hedge Fund Industry Sector Growth in China.

Steinberg reports: "QDLP is a proposed policy coming from the Shanghai Municipal Government and it hasn't been fully approved or announced - although there has been a great deal of chatter. Based on the current newsflow, QDLP licenses will be given to non-Chinese hedge funds with AUM of at least USD$10 billion each; with these licenses (and we don't know how many in total will be issued), these hedge funds will be able to set-up shop in Shanghai and raise RMB funds from Chinese institutional investors and HNW individuals - the funds raised will need to be used/invested outside of China. According to reports, in "Year One" only USD$5 billion (in RMB) combined will be allowed to be raised by QDLP license-holders. This amount would steadily increase as the program develops. As a panel, we believed that QDLP licenses would not be issued until 2013. Also, we felt that this policy would be "mostly symbolic" for global hedge funds - a symbolic positive step - but not a game changer".

In terms of QFII, Steinberg and his panel reported that QFII licenses have been issued to "Qualified Foreign Institutional Investors" such as Morgan Stanley and Goldman Sachs since 2003. "Although they have not yet been issued to hedge funds, hedge funds may currently buy China "A" Shares through either a QFII broker or through a Chinese broker. They have access but not direct access" says Steinberg.

QFII would allow foreign hedge funds to directly purchase China A Shares (long only) but the Beijing panel did not believe that foreign hedge funds will be issued QFII licenses anytime in the near future. "Hedge fund will continue to use the hedging tools that are currently available of which there are several" says Steinberg, "QFII is not the only tool."

In terms of hedge fund industry growth in China, the panel were more optimistic, seeing opportunities for the development of a hedge fund infrastructure ecosystem developing in China, including lawyers; capital-raisers and public relations consultants. "They will all be ramping up their hedge fund efforts in the near future as a mini hedge fund industry blossoms" says Steinberg.

This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.