Hedge funds in no rush to set up in China

Paamco's David Walter does not see hedge funds clamouring to establish a China presence. Meanwhile, the Hedge Fund Standards Board is expanding into Asia, reflecting the industry's development.
Hedge funds in no rush to set up in China

The world’s biggest hedge fund manager may have set up a wholly foreign-owned entity in Shanghai, but that is unlikely to spark a wave of sudden moves among Bridgewater Associates' peers, argues an industry veteran.

Eventually more players will set up in China, but they are not keen to do so in the short term because of domestic capital controls and regulation, says David Walter, Asia head of research at fund-of-hedge-funds firm Paamco.

“I don’t see hedge funds waiting to set up in Beijing or Shanghai instead of Hong Kong,” noted Walter, who is based in Singapore. “I don’t think they are confident enough in the regulatory situation in China, especially if they want to raise money offshore.”

Beijing has been seeking to make it easier for fund managers and other investors to access domestic assets and clients in recent months. But the rules are changing rapidly, and there remain uncertainties and restrictions in areas such as capital repatriation, short-selling and tax treatment.

As a result, Walter sees Hong Kong remaining the main regional hedge fund hub for the foreseeable future.

Be that as it may, traditional asset management firms are busy assessing their options for accessing China, with a growing number moving to establish a mainland presence. Meanwhile, at least 25 mainland fund houses are mulling setting up their first offshore branch in Singapore rather than Hong Kong, as reported.

Meanwhile, the Hedge Fund Standards Board (HSFB), a global standard-setting body, has established an Asia-Pacific committee, comprising various heavy-hitters from the investment industry. They include senior executives from Singapore sovereign wealth fund GIC, Australia’s Future Fund, Canada Pension Plan Investment Board and alternatives manager PAG (see full list below*).

In addition, Betty Tay, head of the external managers department at GIC, has joined the board of HFSB trustees.

Moreover, Singapore-based alternative asset manager Dymon Asia Capital and Hong Kong-based fixed income specialist Income Partners became HSFB signatories in May and June, respectively.

The Asia-Pacific committee aims to help the HSFB establish a more dedicated effort in the region. The trade body was formed in January 2008 and is supported by 120 hedge fund managers with $800 billion in total assets and 60 institutional investors with $600 billion in allocations to hedge funds.

This is seen as another step in the right direction for the industry in Asia. Paamco’s Walter, whose firm is a signatory to the HSFB, said he had seen improvements in governance and compliance among hedge funds in the region. The industry is becoming more institutional-quality, he added.

But there is stil some way to go, noted Walter – for example, Chinese private fund managers still need to gain a better understanding of the needs of overseas institutional investors.

Another area of concern has been the relatively high level of fees versus the relatively poor performance of hedge funds in recent years. Walter agreed that this is a “very valid point”, but noted that fees had been coming down over the past few years.

There’s been a shift towards managers in the region becoming more aware of the issue around fees and the need for more transparency and good governance, he added.

With the likes of large, respected institutional investors throwing their weight behind the HFSB committee in Asia, that is only likely to continue.

*The Trustees of the HFSB are:

  • Amelia Fawcett, chairman of HFSB
  • Jane Buchan, CEO, Pacific Alternative Asset Management Company
  • Clint Carlson, president & CIO, Carlson Capital
  • Bruce Cundick, CIO, Utah Retirement System
  • Tom Dunn, managing principal, New Holland Capital
  • David George, head of debt and alternatives, Future Fund Australia
  • Chris Gradel, founder, Pacific Alliance Group (PAG)
  • Kathryn Graham, head of strategy and co-ordination, Universities Superannuation Scheme
  • Paul Marshall, chairman and CIO, Marshall Wace
  • George Robinson, co-founder, Sloane Robinson
  • Emmanuel Roman, CEO, Man Group
  • Simon Ruddick, chairman and co-founder, Albourne Partners
  • Daniel Stern, co-founder and co-CEO, Reservoir Capital Group
  • Betty Tay, MD, head of the external managers department, GIC
  • Mario Therrien, senior vice president for external portfolio management – public markets, Caisse de dépôt et placement du Québec
  • Dale West, senior managing director, Teacher Retirement System of Texas
  • Poul Winslow, head of thematic investing and external portfolio management, Canada Pension Plan Investment Board
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