AsianInvestor recently carried out a project to identify the top 10 portfolio managers in China, those with star quality and a sprinkling of magic. You can find our rationale for this venture by clicking here.

We based our choices on a weighted set of criteria: long-term track record, market experience and applicability of strategy for a changing China. What unites them is an ability to find value, typically in sectors that will drive China’s future growth. These people have strong convictions and an ability to make good decisions.

Overall our list comprises three managers of public mutual-fund and seven on the private markets side.

Many private markets managers started life in the public arena, building a good track record before looking for greater investment flexibility and a better profit-share from higher management fees.

They argue the less onerous compliance requirements that come with working on the private market side gives them greater flexibility to execute. Many target undervalued stocks whose share prices stand to be driven by company restructures or turnarounds.

Private sunshine funds – China’s equivalent of hedge funds – have seen assets under management surge 161% this year to June to Rmb1.28 trillion.

Market-neutral strategies have enjoyed a boost in perception given the recent equity market swings, although few private securities managers engage hedging tools beyond index futures.

Managers are allowed to borrow and short-sell a select range of stocks, but are generally deterred by limited availability, regulatory scrutiny and cost.

Nevertheless, these managers merit recognition for seeking to develop more sophisticated strategies in a market with limited hedging tools.

Here we profile the second private markets manager to make our list, Li Hualun of Rosefinch Investment.

Li Hualun

Li Hualun, managing partner and CIO, Rosefinch Investment
After a 20-year career in China’s public securities industry, Li Hualun founded private markets manager Rosefinch in 2007, initially to make long-only equity bets.

Its first product of that year generated an annualised return of 17.9% and a cumulative return of 269% as of July 31, against -26% for the CSI300 Index, according to Gesafe data.

It was only in 2012 that Li started to build market-neutral strategies using quantitative stock selection and employing index futures for shorting.

He now looks to blend both strategies, although risk control remains his top priority, with Li saying that none of the firm’s 70 products have lost more than 15% of their initial net asset value.

“How to minimise your loss is most important, particularly when market sentiment is weak,” he stressed.

Li strives to build portfolios with low correlation to the broad equity market to minimise volatility, although he said he had come to realise the importance of innovation to capitalise on China’s economic transition.

With a 30-strong investment and research team, Rosefinch now manages Rmb20 billion ($3.14 billion). Around a quarter of its 70 products employ market-neutral strategies, while the remainder run active long-only portfolios.

Having launched a Hong Kong office last year, Rosefinch is one of the few Chinese private managers to have won advisory mandates from international clients.

Li said the chief concerns of foreign investors were compliance and an ability to maintain stable returns over the long term. He also pointed to transparency and information disclosure.

“There is no fast track to making profit in this market," he added, "but a stable investment approach will be the way to make positive returns in the long term."

Previously highlighted from the list of top 10 China stock pickers:

George Jiang Jinzhi, Greenwoods Asset Management

Song Kun, E Fund Management

Peng Gan, Baoying Fund Management

Jiang Jianwi, Axa-SPDB Investment Managers