Gottex Fund Management has partnered with Shanghai-based VStone in a deal that represents the first acquisition of a stake in a mainland sunshine trust manager by a foreign firm.
The Swiss fund of hedge funds has entered into a joint-venture with the Chinese firm that will see Gottex take an undisclosed minority holding in the sunshine fund company.
The partnership will also provide Gottex with a distribution channel in the mainland, while facilitating access to the China onshore market for institutional and qualified private investors.
VStone principals will be issued covered warrants of more than 1.725 million of Gottex shares – equal to around 5% of its issued share capital – at an exercise price of Sfr3.50 ($3.84), valuing the deal at about $6.6 million.
The deal is subject to Chinese regulatory approvals, which are expected to be granted within the next two months, says Gottex.
VStone, with eight actively managed onshore funds with a total AUM of Rmb5.5 billion ($902 million), has an investor base that includes institutional, retail and high-net-worth individuals.
The firm is headed by veteran mainland asset management executive Jiwu Chen, former chief investment officer of Chinese firm Fullgoal Fund Management and ex-investment director of China Life Insurance.
“It was important to partner with a team with a long track record in China’s asset management industry,” Max Gottschalk, chief executive of Gottex Asia, tells AsianInvestor.
VStone is considered a mid-sized manager of sunshine funds – prototypes of hedge funds in China. Industry executives on the mainland say it can be difficult for small to mid-sized sunshine funds to raise enough capital from major institutions to reach critical mass.
However, partnering with a larger, well-established foreign entity can help bolster investor interest and inflows, they argue. Gottex manages about $5.8 billion in assets.
The VStone deal indicates the Swiss firm is further stepping up its activity in Asia, after it recently partnered Headland Strategic in Hong Kong to provide seed capital to hedge funds in the region.
Gottex does not have an investment quota under China's qualified foreign institutional investor (QFII) scheme – which enables overseas investors to mainland securities onshore. However, it will proceed with a QFII application given that it will have capabilities on the ground in China, says Gottschalk.
Gottex has not applied for a quota under the qualified domestic limited partner (QDLP) scheme in Shanghai, which enables foreign hedge funds to raise capital from onshore mainland investors.
Instead, the firm will seek to access institutions and individuals in China with assets offshore through the qualified domestic institutional investor programme. The scheme enables Chinese domestic investors to access foreign securities through institutions that have been awarded quotas.
The joint venture will work with Chen to help grow “his business locally through local investors, as well as introducing VStone to our international client base [that is] seeking onshore China investments”, says Gottschalk.