Shanghai-based Rosefinch Investment is preparing for expansion just days after receiving its asset management licence for its new Hong Kong office.
The private securities fund company – China’s equivalent of a hedge fund – plans to roll-out products to foreign investors over the coming months.
It comes despite a tough registration process for mainland Chinese hedge funds looking to set up a Hong Kong operation, the lengthy waiting time for which has been compared unfavourably to Singapore’s registration process.
The new office - Rosefinch Global Asset Management (HK) - was initially established last September, but it only received its asset management licence (Type 9) from the Securities and Futures Commission (SFC) on June 15.
“The Hong Kong office will be the first step of our business internationalisation,” said Wang Huan, a director at Rosefinch GAM (HK). “Hong Kong is a place connecting China and the world, with the cross-border investment schemes such as RQFII, QFII and the upcoming QDII2, China will have more connection to global capital markets - that’s why we want to capture opportunities as part of this trend.”
Rosefinch, one of China’s top ten private fund managers, has built a three-strong investment team focusing on overseas investments in its Hong Kong office, and part of its research capability will be built through cooperation with its 30-strong Shanghai investment team.
The Hong Kong platform will target foreign investors’ demand for China assets, while its first batch of funds will be mainly Chinese equity products.
“Foreign investors need a full range of investment solutions when they invest in China, including a combination of A shares and China overseas stocks,” said Wang. It also plans to roll-out products that meet domestic investors’ demand for overseas exposure, he added.
Wang said he expected it would be difficult to raise capital in the early stages because foreign investors would not be able to measure its performance in overseas markets.
“In terms of regulation, domestic markets’ and offshore markets’ requirements are different, and overseas operational costs will be higher than on the mainland too,” he added.
China’s private fund industry has been booming amid soaring equity prices. The industry’s assets grew 135% to Rmb1.1 trillion in the first five months of this year, with 5,067 managers and 7,487 products registered with the Asset Management Association of China.
A few ambitious managers have already set up a Hong Kong office in order to raise offshore capital, such as Greenwoods Asset Management, Prime Capital Management, Springs Capital, Infore Capital Management and Total Invest Group Asset Management. They were the first group of Chinese hedge funds to attract global investors.
During the last wave of Chinese hedge fund expansion in Hong Kong in 2011-2012, many managers said it was difficult to get a licence in the city. They had to hire two responsible officers, and a backlog of applications resulted in a process taking up to eight months. In comparison, setting up in Singapore usually takes only one month, as reported.
Wang said the firm took about seven to eight months to obtain the licence, but compared to two years ago it has become harder because of greater operational and internal management requirements, reflecting a global trend. But the firm chose Hong Kong because the city’s location provided a convenient way to invest in China assets, while its mature capital market and well-established regulatory environment was recognised by global investors.
Founded in 2007, Rosefinch has a total AUM of Rmb20 billion ($3.2 billion), according to the most recent data provided by the firm. Its first product generated an annualised return of 18.1% from its launch in 2007 to mid-May this year, compared to the CSI300 index annualised performance of minus 18.8% over this period, according to third-party distributor Gesafe Wealth Advisory.
Prior to obtaining its Hong Kong licence, Rosefinch won overseas mandates through the renminbi qualified foreign institutional investor (RQFII) scheme; it has also invested in Hong Kong equities via Stock Connect. CSOP Asset Management launched an A-share fund in partnership with UK-based Hermes Investment Management in August last year, using Chinese private managers as sub-advisors via RQFII quotas. Rosefinch is one of the sub-advisers chosen by Hermes.
Yet industry participants have noted that 90% of mainland Chinese private fund companies fall short of the level of risk control demanded by overseas institutions, as reported.