Haitong International AMC is looking to launch two hedge funds this year and is also in fundraising talks with private equity investors in the latest example of a Chinese asset manager tapping offshore alternatives opportunities via a Hong Kong arm.
There are at least 10 Chinese asset management companies with global growth aspirations that have set up Hong Kong subsidiaries. Many are exploring opportunities in alternatives, including hedge funds, private equity and real estate.
Haitong International AM is the offshore arm of Haitong International Securities Group. According to Ben Zhang, the subsidiary’s joint managing director, it is looking to launch a long/short hedge fund and a quantitative hedge fund focusing on emerging markets this year.
The Hong Kong-based asset manager also has five staff on its private equity team and invests its own capital. Supported by the recently launched qualified limited foreign partners (QFLP) scheme, it is in fundraising talks with several overseas investors as potential limited partners.
Zhang says he expects the AUM of its private equity division to hit $100 million, with further details due to be announced in March.
Meanwhile, Harvest Global Investments (HGI), the Hong Kong subsidiary of Harvest Fund Management, has developed both onshore and offshore alternatives platforms, which are managed by Harvest Alternative Investment Partners.
“We are adopting a multi-boutique strategy across the alternatives spectrum, including hedge funds, private funds, real estate and special situations,” notes Lindsay Wright, head of Harvest Alternative Investment Partners and HGI’s vice-chairman.
Deregulation is providing a chance for these Hong Kong subsidiaries to cultivate the more exotic landscape of alternative investment that their mainland parents have hitherto had little access to.
Consultancy Z-Ben Advisers believes that Chinese institutional investors will, in fact, be able to build far more sophisticated offshore portfolios than many observers, and even Chinese FMCs, expect.
It suggests that, to date, lack of access to such assets combined with regulatory controls over onshore-earned capital have hampered development.
“However, as HGI’s development suggests, while access to onshore alternatives remains limited, Hong Kong represents the ideal place to offer it to mainland customers,” notes Francois Guilloux, director of regional sales at Z-Ben.
Harvest, he points out, appears to have decided that domestic investments are best managed from Beijing, while regional (and later global) investments are best managed from Hong Kong.
Harvest Alternative Investment Partners, which was set up in the fourth quarter of 2010, has completed two investments. It acquired a 30% stake in JT Capital, an offshore Greater China long/short hedge fund that started trading last November, and it took a 30% stake in Ample Harvest Capital, a mezzanine debt firm that employs an onshore China fund strategy and is due to start trading in the next month.
When it comes to private equity and real estate, Wright suggests Harvest Alternative Investment Partners will be looking to establish onshore RMB funds.
She adds: “With the recently launched QFLP scheme, as a general partner we can raise funds both onshore from domestic Chinese investors and also from offshore investors, subject to certain restrictions.”
Launched in Shanghai in January, the QFLP scheme enables foreign investors meeting certain qualifications to invest in private equity funds provided the dollar amount of their investments does not exceed the limit approved by the State Administration of Foreign Exchange (Safe).
Investments by QFLP may be in foreign currency, although investees can settle in renminbi. However, the total dollar amount that each qualified PE fund can settle in RMB cannot exceed $100 million, or 50% of the total capitalisation of the PE fund. The dollar amount of foreign currency that the general partner of the PE fund can settle shall not be more than 5% of the total capitalisation of the PE fund.
During an interview with Wright last November, she said: “Alternatives investment is still in its fairly early stages for Chinese asset managers, but we believe there will be tremendous opportunities going forward.”
She added that although Harvest Alternative Investment Partners’ portfolio will not be significant to the earnings of Harvest Group in 2011, it is expected to become a relevant contributor to earnings over the next three-to-five years.