Hedge funds grow as tighter checks loom

PUBLISHED : Saturday, 12 March, 2011, 12:00am
UPDATED : Saturday, 12 March, 2011, 12:00am

Hedge funds are growing even though the industry is expected to face tighter regulation, the Securities and Futures Commission said.

A survey released by the regulator yesterday showed that assets under management by hedge funds in Hong Kong rose to US$63.2 billion as of September last year, an increase of 14 per cent from the previous survey in March 2009.

While the survey showed steady growth in the sector, the SFC said it was under pressure to regulate these funds in line with international practice.

Unlike traditional mutual funds which make conventional investments in stocks, bonds and commodities, hedge fund managers use a range of investment strategies and derivatives to increase their performance and to beat the markets.

After the financial crisis exposed some hedge funds' activities and strategies and highlighted their lack of transparency, many international regulators called for more regulation and increased disclosure.

'Closer scrutiny of the hedge fund industry is a global trend,' said Martin Wheatley, the chief executive of the SFC. 'We will continue to maintain a balanced approach to regulation with a view to allowing room for industry development and growth without compromising investor protection.'

Hong Kong Investment Funds Association chief executive Sally Wong Chi-ming said all key financial centres were seeing increased regulation for the hedge fund sector and she did not think Hong Kong's competitiveness would be affected if the SFC followed suit.

'In fact, as long as the right balance is struck, a more robust framework will only further increase investor confidence, which will help reinforce Hong Kong's position as an asset management centre,' Wong said.

The number of hedge funds run by SFC-licensed managers stood at 538 at the end of September last year, similar to that in the 2009 survey, but five times higher than in 2004.

The hedge funds are mainly invested in the Asia-Pacific region. Of the 66.1 per cent of assets invested in the region, 14.7 per cent is in Hong Kong, 12 per cent on the mainland, 12.9 per cent in Japan and 26.5 per cent in the rest of the region, including Australia and New Zealand.

The rest is invested in North American and European economies and cash.

The survey found relatively few Hong Kong people invested in the hedge funds, with 92.1 per cent of the investors being from overseas, mainly institutions such as insurers, pension funds and banks.

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Hong Kong hedge funds totalled US$63.2 billion in September last year

Compared with March 2009, the size of the assets under the hedge funds' management had increased by: 14%