Australian hedge funds are angling for potential inflows of $5bn billion per annum from ultra-high net worth (UHNW) investors under a new government immigration policy.
Dubbed the '888 Visa down under', the Significant Investor Visa (SIV) scheme was launched on 24 November 2012, and offers Australian residency to migrants who invest $5m for four years.
The monies must be in 'complying investments' which includes Australian regulated funds with a mandate to invest in Australian assets.
David Chin, managing director of funds & derivatives consultancy BasisPoint, says around 1000 visas are likely each year, which equates to inflows of $5bn annually. For perspective, this is equivalent to nearly one sixth of the entire superfund (pension) industry net inflows last financial year. The Australian Department of Immigration reportedly estimates 700 p.a.
So far, more than 300 hedge fund managers, private bankers and asset managers have attended Chin's SIV seminars in Australia and Hong Kong to explore opportunities.
'The field is wide open with no dominant 'gate-keepers' at this stage between Australian fund providers and high net worth investors,' says Chin, who notes that the visa's numerical reference of 888 suggests it has been designed with Chinese investors in mind. (The number 8 is considered auspicious in Chinese).
Canada and Singapore have recently halted their investor visa schemes (C$800,000 and S$10 million) due to overwhelming demand, so this Australian initiative has come at a good time. Migrants need only stay 160 days within the four year period to qualify.
According to Chin, SIV could also offer joint venture opportunities between Chinese high net worth entrepreneurs who want to develop hedge fund management businesses in China and Australian managers who have the skill set.
For the Chinese migrant, it is a triple-benefit. He/she gets the visa, gets to keep an eye on their $5m investment, and gets to 'learn the DNA' of a hedge funds business. The Australian manager gets fresh capital, and a joint venture business partner in China.
Chin notes that like the USA in the late 1800s, Chinese fortunes today are transitioning from the industrialists to the financiers. (USA railroad barons and steel magnates in the late 1800s to bankers in the early 1900s). He cites a Z-Ben/Citi report that forecasts the Chinese mutual funds industry tripling to $1tln from 2012 to 2015.
Not all Australian hedge fund managers qualify as nearly 30% of AUM held by local funds is allocated to global investment mandates, according to data from BasisPoint's Australian Hedge and Boutique Funds Directory.
However, qualifying Australian managers are quickly seeking distribution partners in China, Hong Kong and Singapore. 44% of Chinese high net worth investors are seeking to emigrate in near future, according to the Hurun Report, which on their numbers, equates to 28,000 UHNW and 440,000 HNW Chinese.
India, North East and South East Asia, (ex-Japan) are other viable sources of UHNW SIV migrants, with a combined 847,000 HNW individuals compared to 535,000 in China, according to the 2011 CapGemini Global HNW Report.
For the HNW in Asia, Australia has additional appeal in terms of being in the same time zone (to continue business dealings at home), is a key education destination for their children, and offers 'a golf day everyday,' says BasisPoint's David Chin.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.