The Alternative Investment Management Association's new memorandum of understanding with the Asset Management Association of China is a big deal for the hedge fund industry within and outside the mainland, say industry sources.
This is the first agreement Amac has inked with an international organisation and is regarded by observers as a major step because the body is endorsed by the China Securities Regulatory Commission.
The associations will collaborate on the mutual exchange of information about the hedge fund industry, including regulation. Aima and Amac will also explore holding professional development events and seminars in China.
Industry sources have in the past raised concerns that Amac might not collaborate with Aima, suggesting that therefore this agreement is a major step forward and should be very beneficial for Aima’s mainland strategy.
One fund manager noted: “This is not like the US, where you have organisational plurality. There’s only one show in town and it’s Amac, the CSRC-endorsed organisation.”
“To a whole new generation of emerging Chinese hedge fund managers, this is endorsement from the highest level,” added another.
It's understood that the MoU is not an exclusive relationship. This means Amac could make similar agreements with other associations – but Aima is the first to have struck such a partnership and thus has first-mover advantage.
Many international managers hope the MoU will help spur development of hedge funds in China that would be offered to local investors and invest directly in the domestic market.
However, it is understood that Aima and Amac will not discuss policy changes, or fund-raising or distribution issues. “Our first and primary role is the education of investors, managers, policy makers and regulators,” said Philip Tye, Hong Kong chairman of Aima.
Aima recently held conferences in Shanghai and Beijing, and it will arrange more educational events on topics relevant to the hedge fund industry in China.
Lack of knowledge on the part of investors is one of the obstacles hedge fund managers face when they enter China’s market.
“Education is a great challenge,” agreed Effie Vasilopoulos, a partner at law firm Sidley Austin. “There is relatively little understanding of private funds, especially those offered by large foreign managers in the high-net-worth segment of the mainland investor base. The collaboration between Aima and Amac, assuming this is supported by the CSRC, could greatly help in this area.”
In China, many institutional investors are not allowed to invest in hedge funds, which as a result have to rely on high-net-worth individuals. However, HNWIs understand little about foreign hedge funds or other kinds of private funds as these are new products in China, Vasilopoulos told AsianInvestor.
“[Investors] tend to look on an investment in a private investment fund, such as a hedge fund, as being akin to investing in the stock market," she added. "There are often unrealistic return expectations and a short-term investment horizon."
Another challenge is fund distribution because four big banks – Bank of China, China Development Bank China Construction Bank and ICBC – between them command 80% of the market.
Under China’s legal framework, international hedge fund managers can only access the country’s onshore market through Shanghai’s qualified domestic limited partner (QDLP) scheme, which has to date admitted six foreign hedge fund players.
Aima has over 1,400 corporate members hailing from 50 countries who in total manage assets of $1.5 trillion. Its members include hedge fund managers, fund-of-hedgefund managers, prime brokers, legal and accounting firms, investors, fund administrators and independent fund directors.