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Alternative Market Briefing

Nearly 1,300 China hedge funds have shut down

Wednesday, September 16, 2015

Komfie Manalo, Opalesque Asia:

Nearly 1,300 of China’s hedge funds have shut down since the Chinese stock market plunge in August.

But the worst is yet to come as Chinese authorities have introduced new restrictions on short selling and other hedging strategies, reported Bloomberg. Those government restrictions will make bear-market bets more difficult.

Howbuy Investment Management Co. told Bloomberg that a similar number of hedge funds in China are facing comparable prospects of closures.

The number of hedge fund-like vehicles, or private placement securities funds, exploded in China over the last years. In 2015 alone, the number of these hedge funds more than doubled and peaked at 1,159 as of Aug. 31, managing 1.62 trillion yuan (about $254 billion) in assets, according to data from the China Securities Regulatory Commission.

However, most of these Chinese hedge funds are long-only, and bet solely on rising markets. Even before government restrictions on practices such as short-selling, the majority of China-based managers avoided betting against individual securities because they lack the expertise for such complex strategies and also because they are expensive.

"The real hedge funds," which use risk-management tools including stock index futures, recorded mostly positive returns in the June to August p......................

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