Hong Kong start-up Parantoux Capital is awaiting a licence and looking to expand its team as it prepares to launch a long/short event-driven strategy.
This reflects a trend of China-focused hedge fund managers moving to set up up shop in the city. Such firms usually already have mainland operations, but want to run offshore hedge funds and attract foreign capital through Hong Kong. Some are choosing to join incubation platforms in the city to build scale and track record.
Parantoux, however, is incorporated and headquartered in Hong Kong. Having set up in March, it hopes to receive an asset management licence from the local Securities and Futures Commission in the next two months.
The firm’s team is six-strong and it is looking to hire two more – an analyst and a trader – this year. It will launch the long/short event-driven fund soon after it obtains the licence.
The strategy will be China-centric, investing in names both on the mainland and in markets such as the US, Japan and Hong Kong in companies that are likely to be involved in China-related M&A or restructuring, with a bias towards the TMT and consumer sectors, Lu said. The fund will invest in debt as well as equities, she added.
Parantoux founder Gloria Lu, who will manage the strategy, said she estimated the fund would raise an initial $50 million to $100 million, and that it had no maximum capacity as such. The minimum investment is $1 million.
Both Lu and her business partner Yang Diao will put in their own capital, which will account for at least 10% of the fund's initial AUM. They aim to raise the rest from high-net-worth individuals, family offices and funds of funds.
Lu and Diao were previously investment bankers with boutique advisory firm China Renaissance and decided to set up Parantoux Capital when the IPO market slowed down. “The IPO market was pretty much dead; all the money went to the private sector, in private equity and venture capital,” Lu noted.
“There were a lot of unicorn companies coming out, but they were not going into the IPO market,” she added. ‘Unicorns’ refer to companies – usually start-ups without an established track record – with more than $1 billion in market capitalisation.
But there are now abundant opportunities for event-driven managers, she said. “There are a lot of events for sure, and some black swans, and even just the regulatory changes in China already give us opportunities in events to invest in.”
Chinese wealth manager Noah Holdings plans to add Parantoux’s product to its fund-of-hedge funds platform, as reported. Noah is optimistic that there are opportunities in M&A for Chinese conglomerates as a result of Britain’s vote to exit the European Union.
Lu was head of equities at China Renaissance between August 2014 and February 2016, responsible for equity research, sales and trading, distribution and operations. Before that, she was deputy chief executive at China Life Franklin Asset Management.
Co-founder Diao was co-head of investment banking at China Renaissance between October 2014 and February 2016. He was previously a managing director in the investment banking team at JP Morgan, advising Chinese clients on strategic M&A and capital markets transactions in the TMT and entertainment sectors.