The first fund firm to participate in China’s commodities futures market has raised Rmb200 million ($31 million) for its CTA fund, raising the prospect that other managers will follow suit.
UBS SDIC, a locally incorporated joint-venture between the Swiss bank and SDIC Trust, revealed yesterday that it had successfully raised the sum from segregated account clients.
It is now in the process of applying for trading codes at four futures exchanges: three commodity bourses in Shanghai, Dalian and Zhengzhou, as well as the China Financial Futures Exchange.
China Merchants Futures is the investment adviser to UBS SDIC. Its vice-general manager, Huang Yaomin, says the fund aims to arbitrage mispricing between correlated commodities, such as soy bean and soy meal. It will also adopt calendar spread arbitrage between contracts for the same commodity.
“It will primarily focus on commodity futures, but that does not rule out trying to capture arbitrage trading opportunities between stock index futures and cash equities,” adds Huang.
China Merchants Futures provides research support and trading ideas, with Huang noting that Chinese fund firms are short on talent in commodity futures and don’t have dedicated teams.
Although it may not be regarded as a top-tier fund management company, UBS SDIC is known for product innovation.
Shanghai-based consultancy Z-Ben Advisors points out that the JV firm was the first to launch a classified fund, an industry index fund and a segregated account for index futures. “The launch of a commodity futures product will further enlarge the company’s product portfolio,” it adds.
China Universal, a Shanghai-based fund manager, has also confirmed plans to launch a segregated account product to invest in commodities futures. Its partner is Eastern Air Jin Rong, a futures brokerage arm of China Eastern Airlines.
At present FMCs are only allowed to trade commodities futures for segregated account clients who are professional and high-net-worth investors. Mutual funds are only allowed to trade stock index futures for hedging purposes.
More CTA funds are expected to be launched, with greater participation among institutional investors seen as beneficial to the development of commodities futures in the country.
But Huang does not expect segregated account funds to become major players in the near-term in China’s futures markets, for which total trading volume last year stood at Rmb137.5 trillion ($21.6 trillion).
Nevertheless, Huang suspects segregated account platforms at fund firms could potentially be used as a channel for underground commodity futures hedge funds to raise funds from investors legally.
He also expects securities firms to be able to launch CTA funds through collective asset management schemes by the fourth quarter this year, when the consultation period for discussion on financial innovation by securities companies closes (see AsianInvestor magazine’s June 2012 edition).