Hong Kong-based SinoPac Asset Management (Asia) plans to launch a Greater China convertible bond fund and a systematic managed futures arbitrage strategy to tap demand for non-correlated returns, AsianInvestor can reveal.
The firm is hoping to reach $30 million for each fund within two years, with returns of 15% and volatility of 5% annually. The two products will launch within the next two months, with the convertible bond strategy to be run by Patrick Ma and the managed futures fund by Jerry Teng.
The firm’s chief executive, Danny Wang, told AsianInvestor that the firm was looking to tap Taiwanese institutional demand for regular income products and market-neutral strategies with low market correlation.
SinoPac AM (Asia), an offshore entity of Taiwan’s SinoPac Financial Holdings, has most of its clients in Taiwan, the bulk of which are private investors such as family offices and high-net-worth individuals.
The convertible bond fund will invest in Greater China corporate bonds that have the option to convert into shares at a given price. This allows investors to benefit if the company’s stock price rises, but also offers the regular income of conventional corporate credit.
There are limited global investment opportunities currently, and most investors have been either sitting on the sidelines or allocating either to fixed-income or absolute-return strategies, Wang said.
Private lending and downside-protected secured debt are now quite popular with institutional and private clients in Taiwan investing offshore, he noted, and the challenge for institutions of generating income these days means demand will likely rise further.
SinoPac’s planned managed futures arbitrage fund will be a systematic market-neutral strategy with a particular focus on Asian equity index futures.
With some $400 million in AUM as of end-May, SinoPac largely runs alternatives products, including hedge, market-neutral and quant funds.
There has been a lot of negative press about hedge funds recently, Wang admitted, with some pensions talking about eliminating such strategies from their portfolio.
However, as many pension funds learned during the market sell-off in the fourth quarter of 2008, they were not as diversified as they thought. Today most investors are looking for mid- to high-teen returns from their hedge fund portfolios, said Wang.
“Hedge fund allocators and investors are always looking for strategies uncorrelated with the capital markets,” he said, noting that the region's equity markets were performing until last year, especially in China and Japan.
Quantitative easing has failed to boost macroeconomic fundamentals globally, added Wang. With the US Federal Reserve’s moves becoming the central theme, most assets are subject to risk-on and risk-off scenarios, he noted, with most strategies tending to exhibit very high positive market correlation at such times.
The planned launches follow SinoPac AM's launch last month of a Cayman-registered global equity systematic fund, sub-advised by Austrian alternatives fund house Superfund Capital Management. Wang declined to say how much any individual fund had attracted, but said the firm had raised almost $20 million in systematic strategies since the start of 2016.
The market-neutral strategy – which trades based on algorithms – focuses on companies listed on major stock exchanges in Europe, Asia and the US.
The product is not designed to outperform; if the equity markets trend up, it will underperform. “The strategy’s near-zero correlation with the equity market is the main reason we decided to launch it,” Wang said.
The systematic fund is currently sold only to professional investors. Though liquid alternative funds have picked up steam, intermediaries as well as clients need to be educated on true merits of a model portfolio, noted Wang.
“In due course, with more disclosure, robust distribution mechanisms and more liquidity, such products could be offered to a wider segment,” he added.