A new China arises

September 19, 2013  

A new-found openness to embrace hedge funds is redefining the investment landscape in China

By Aradhna Dayal

nullIn Shanghai this month to host AsiaHedge’s inaugural China Forum, I came across a completely new China. One that is willing to talk freely about hedge funds, one that is as comfortable applying index futures and other shorting techniques as it is with long-only investing, and one that is not afraid to embrace the high octane-high alpha strategies of the global hedge fund world.

Barely a couple of years ago, witnessing something as open to new ways as this would have been next to impossible. Gone are the days when domestic asset managers talked in hushed tones about the grey area of raising hedge fund assets and global managers tiptoed around trying to find the least objectionable entry strategies into the country.

Not any longer. In the packed ballroom of the Grand Hyatt – the venue for the China Forum – top regulators, investors and fund managers animatedly debated issues ranging from the changing regulatory environment that is legitimising the hedge fund industry, to applying global investing models such as Black Scholes; and international managers talked about alternative investment entry strategies that will allow them to operate like domestic asset managers.

This is indeed a new China. One that is opening its arms to the world, and is eager to make a splash on the global hedge fund map. And right on cue, the very day after the AsiaHedge China Forum – on which we will bring you a full report in our October issue – news came out that the first QDLP (Qualified Domestic Limited Partner) licences have been quietly awarded on a trial basis to six international hedge fund groups: Man Group, Oaktree, Och Ziff, Winton, Canyon and Citadel.

The quotas are expected to be for $50 million each and the official sign-offs on these quotas is still understood to be in the works, after which a more public announcement giving a good more detail can be expected.

While we wouldn’t be so audacious as to take credit for this landmark moment, it is unquestionably the case that events like the China Forum – and the intellectual buzz they create – have gone a long way towards developing the right ecosystem for a truly global hedge fund industry in China.

And while at $50 million the QDLP quotas may look small at present, we should not lose sight of two facts: firstly that this is indeed a milestone – one that allows foreign hedge funds to set up shop in China and raise domestic assets to be invested abroad; and secondly that in true China government-style, even the QFII quotas started in a limited fashion but have been expanded exponentially in recent times.

Aside from the exciting developments in China, there is plenty more good news at the broader Asian hedge fund industry level. The latest AsiaHedge Asset Survey shows a sharp recovery in industry assets in the first half of 2013, taking assets up to $153 billion.

While a good chunk of that came from performance (Asian hedge funds were up a solid 6% in the first six months of the year), the 10% growth in the first half of the year is also a testament to the Asian industry’s growing prowess as a globally-comparable business in terms of pedigree and infrastructure, which saved it from being whipsawed along with other emerging markets this year.

Strong inflows into Japan funds fuelled by continued investor confidence in the Abenomics revolution, as well as reviving interest in China and inflows into macro and multi-strategy funds, also all helped to contribute to the industry’s growth in the first half.

Our half-year assets survey in this month’s issue gives the full run-down on all the facts and figures behind the industry’s growth and its changing structure.

In Asia’s other global superpower, India, a nascent hedge fund industry is taking shape and we bring you an in-depth feature on the evolving regulation and the emerging players in that country. And in our Fund Profile this month, we showcase two former college buddies and ex-journalists who started out in the newsroom and ended up running the highly-successful commodities-focused CTA Splendor Capital.

On top of that, AsiaHedge’s latest issue is packed with news on exciting new launches such as ex-Tiger manager Wang Chen’s Serenity Capital venture, Goldman Sachs’ Oryza Capital roll-out and Pine River’s innovative China multi-strategy fund. There are also updates on the largest hedge fund shops in Asia, such as Azentus and Turiya, which are crossing multi-billion dollar asset levels and bringing in strong performance.

These are exciting times for Asia. We hope that you will enjoy reading this action-packed issue as much as we enjoyed writing it.

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