Mainland China fund venture to spur capital inflows

In what is seen as a vote of confidence in the Chinese hedge fund sector, leading Swiss group Gottex teams up with VStone to tap the market

PUBLISHED : Monday, 11 November, 2013, 5:17am
UPDATED : Monday, 11 November, 2013, 6:40am

The mainland's hedge fund sector has received a shot in the arm with the establishment of a Sino-foreign joint venture between Gottex Fund Management and VStone Asset Management, which is likely to open the floodgates for a huge capital inflow into upcoming domestic hedge fund managers.

Chen Jiwu, the president of VStone, a leading hedge fund manager on the mainland, told the South China Morning Post that the venture would manage assets worth several hundred million US dollars.

"The joint venture is a measure of the confidence foreign institutions place in local hedge funds," Chen said. "It could help Chinese and foreign funds better understand each other."

Gottex, a Swiss fund-of-hedge-funds manager, has been looking to tap the mainland market.

Sources said several other big global names, including Man Group, were also seeking opportunities to partner with domestic players to explore the share market.

"I believe we are past the poor sentiment seen against China in the middle of this year," said Michele Gesualdi, a senior partner with Kairos Investment Management. "The more astute investors are in fact starting to appreciate that actually China, with more development on the capital market side, can offer plenty of stock-picking opportunities regardless of the macro environment."

Mainland stocks are still off-limits for foreign investors but they are allowed to buy under the qualified foreign institutional investor scheme if they obtain a quota from the foreign-exchange regulator.

Beijing has set a total investment cap of US$80 billion for the scheme, of which about US$50 billion has been granted.

"The presence of globally renowned players such as Gottex will also help hedge funds win the trust of investors here," said Chen.

Beijing treads with caution when it comes to hedge funds as several outfits illegally raised funds from individuals to manipulate stocks in the 1990s. It was not until 2004 that hedge-fund-like structures, known as sunshine trust funds, were allowed on the mainland but they could be launched only through trust firms.

There are now about 1,000 such funds on the mainland. One of the best performers is VStone, established in 2008 by Chen, a former chief investment officer at mutual fund house Fullgoal Fund Management and China Life Insurance, with US$1 billion of assets under management.

Mutual funds still play a dominant role in the mainland's securities sector but Beijing is becoming increasingly aware of the importance of hedge funds.

The National People's Congress promulgated an amended law governing securities investment funds on June 1, giving experienced money managers greater freedom to raise capital.

Hundreds of experienced fund managers from the mainland's mutual fund companies have jumped ship to the hedge fund sector in the past years to chase higher returns and income.

"Hedge funds are an indispensable part of institutional investment in the mature Western markets, and it's necessary to support their growth in the mainland market, too," said Howhow Zhang, the research head of fund consultancy Z-Ben Advisors.

"Local managers with good track records and reputation will grow fast in the coming years with increasing fund inflow from domestic and foreign investors."