By Aradhna Dayal
On a recent trip to
Shanghai, I was impressed to see a rare combination of change
and history - a spirit that also seems to permeate the
country's emerging hedge fund industry.
As beautifully lit skyscrapers compete for attention with
the historic Bund, as modern day cars jostle for space with the
glorious old rickshaws, and as Hermes scarves flutter about the
lovely Cheongsam dresses, China seems ready to go global.
What is striking, however, is the desire that the country
and its people have to keep its traditions alive, and adapt
them to the international trends.
It is no surprise then, that China's nascent hedge fund
industry is adopting the same progressive yet cautious
approach. Starting from June, the new investment fund law comes
into force, which will allow the sunshine funds (as the
quasi-hedge funds in China are called at present) - many of
which function in something of a grey area as of now - to be
licensed as proper asset management firms.
This will allow them not only to launch well-regulated funds
and raise significant assets, but also to appear to be fully
compliant and credible in the eyes of global investors. In
short, it will enable them to transform themselves into
international-calibre alternative investment shops, while
keeping their own history alive.
The other landmark change is taking place on the regulatory
front. While index futures are the only tools available right
now for hedging, there is a slow but steady move towards
allowing individual stock shorting, and towards allowing hedge
funds to access that market directly rather than through a
limited number of brokers. This, when it happens, will usher in
a true hedge fund industry in China.
The new investment fund law might also come as a boon to
global hedge fund shops aspiring to step into China. On the
condition of anonymity, several industry sources mentioned that
foreign hedge fund managers could well be allowed to register
as asset managers under the new investment fund law, as the law
is unlikely to make a distinction between local and foreign
The other door that is opening to global hedge fund shops in
China is the Qualified Domestic Limited Partners scheme, the
pilot programme by the Shanghai government that will allow
foreign hedge funds for the first time to raise local
renminbi-denominated assets in China. While that programme
seems to have been delayed slightly, it is expected to get the
green light from Beijing by mid-year or the third quarter.
Of course, not all local sunshine funds are rushing in to be
licensed under the new investment fund law, and not all foreign
players are clamouring to be the first to get a QDLP license.
Patience, as they have learnt from previous experiences in
China, is often a virtue.
So the sunshine funds are busy figuring out the new
compliance regimes they need to face once get registered, the
fee structure they can apply and how they can migrate assets
from their existing funds to the new licensed products. Global
managers, on the other hand, are doing realistic assessments of
the investment and manpower required as well as the quantum of
capital that can be raised before putting up their hand for
But one thing is certain: the China hedge fund industry is
on the cusp of evolving as a global alternative investments
powerhouse, and those that invest the time and effort to
understand it will have an early bird advantage.
Taking this mantra to heart, AsiaHedge will endeavor to keep
pace with the fast-growing China hedge fund market, including
profiles of onshore sunshine funds, coverage of changing
regulation and special reports on the industry growth. Our
story in this issue on Hillhouse Capital's assets reaching $7.5
billion is an example of this.
Turning our focus to investors, Australia's superannuation
funds are hitting $1.6 trillion in assets and emerging as one
of the most sophisticated allocators to hedge funds in recent
times. This month we take a look at where they invest and
Finally, this issue also brings you the AsiaHedge Asset
Survey for 2012. Despite a sea change in investor sentiment
towards Asia and generally robust fund performance last year,
it shows that the Asia hedge fund industry contracted slightly
by 1.1% to end 2012 at $139.08 billion.