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Komfie Manalo, Opalesque Asia:

According to Eric Wong, principal at Hong Kong-based family office and asset manager TCG Capital, most of the quantitative market neutral strategies he knows in China did well during last year’s downturn, possibly by accident.

Speaking during the recent Opalesque Hong Kong Roundtable, Wong explained that these quantitative market neutral funds are mostly short index futures and long a basket of stocks. With the ease of selling futures (before restrictions were imposed), those collapsed more than the stocks, and the divergence between the basket versus the futures just kept on getting bigger, thus somewhat magnifying their returns.

He continued, "The problem now is that the CSRC (China Securities Regulatory Commission) seems to be trying to reduce leverage in the system. The wealth management products usually have a one-year life and then need to be renewed, which used to be quite easy, but in the present environment they may not be renewed. In such a situation the manager doesn’t have a viable investment strategy because without the leverage – futures margin is at 42% and only 50% of applications to get that lowered to 23% for hedging purposes get approved – the strategy becomes very unattractive from a return perspective."

Plenty of China onshore managers are looking at operating from offsho......................

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