UK-based Man Group’s quantitative investment arm, AHL, will in November launch the first commodity trading adviser (CTA) fund through its Chinese partner, Citic Securities.
Man will act as technical adviser to the strategy. Citic will take care of onshore execution and marketing for the fund, although Man does have an office in Shanghai, headed by Li Yifei.
The initial size of the fund is capped at Rmb5 billion ($815 million). It is a segregated-account product with a minimum subscription level of Rmb1 million that will trade over 20 commodities, agricultural and financial futures contracts listed in China.
Man did not provide any further details, such as which type of investors the fund would target or how much it expected to raise and how quickly.
AHL’s partnership with Citic, which began in late 2012, seeks to benefit from Chinese demand for quant and managed futures funds, which it sees as largely untapped.
In the past year Chinese investors have been investing in more balanced, diversified portfolios and putting a greater focus on risk-adjusted returns, said Murray Steel, Asia chief operating officer for Man Group. That is in contrast to their traditional strategy, whereby they simply sought guaranteed returns or chased the best-performing single strategy, he noted.
Steel sees less hot money chasing the previous year's best performers for quick returns. Today, more investors are trying to understand the various portfolio risk measures, such as the Sharpe ratio, he noted.
In fact, there is a gradually growing understanding in China that managed wealth products are not guaranteed, and that a sound investment process by an investment manager could bring benefits from longer-term investment strategy, said Steel. This all points to a growing sophistication of the investor base in China, he added.
The AHL-Citic tie-up came on the heels of a similar collaboration between Winton Capital Management and Shanghai-based Fortune SG Fund Management in September 2012. This enabled Fortune SG, a joint-venture between SG’s Lyxor Asset Management and Baosteel Group, to launch what was believed to be the first CTA fund targeting high-net-worth individuals and sophisticated investors.
The first CSI 300 futures contract only started trading in April 2010 and has quickly grown into the world’s tenth most-traded futures contract, according to the Futures Industry Association. Chinese exchanges accounted for the top five agricultural futures and options contracts for the year 2013.
AHL, which runs $12.1 billion of Man's $57.5 billion in AUM, is a systematic trading investor that focuses on identifying trends and other inefficiencies. Systematic trading is underpinned by advanced statistical modelling and execution algorithms.
Man and Winton are among six asset managers to have been given a $50 million quota each under the qualified domestic limited partnership (QDLP) scheme to raise money from Chinese investors to invest into their offshore strategies. However, the partnership with Citic is separate from Man’s distribution strategies for the QDLP programme.