International and local finance houses have unveiled plans to develop the hedge-fund market after Hong Kong's securities watchdog proposed a relaxation of the rules governing the sector. Germany-based Dresdner RCM Global Investors will launch three hedge funds for local investors once the new regulatory regime is approved. The Securities and Futures Commission has proposed allowing fund managers to sell hedge funds to the retail public. Meanwhile, Sun Hung Kai Financial Management, a member of one of Hong Kong's largest brokerage groups, has set up a division to sell other fund houses' hedge funds to local investors. Dresdner RCM Global Investors chief marketing officer in Asia, Mark Konyn, said it could be expected that local investors would put their money into hedge funds once the regulation was relaxed. 'The hedge funds are popular in Japan, Australia, Europe and the [United States]. There is no reason why these products would not be popular in Hong Kong,' he said. At present, the SFC allows fund managers to sell hedge funds only to professional investors such as insurers, pension-fund mangers and corporate treasuries. But it is planning to remove the restriction soon to allow fund managers to sell these products to retail investors. Around the world, there are about 4,000 hedge funds, with total assets of US$450 billion. Last year, there were more than 400 new hedge funds launched, with an estimated US$30 billion inflow. Mr Konyn believed that the global inflow would reach US$50 billion this year. 'The interest rate and inflation are going to stay low for a while and the global economic is weak. Investors are looking for ways to enhance their investment portfolios' returns,' Mr Konyn said. Hedge funds use derivatives and alternative investment strategies to allow them to achieve better returns even in a falling market. This is a different approach from traditional funds, which are more closely linked to the performance of stock markets. Mr Konyn said Dresdner wanted to launch three hedge funds managed by its sister company Allianz Hedge Funds Partners. The three funds are so-called 'fund of funds', which invest in a basket of hedge funds to diversify risk. 'The hedge funds are a new concept to Hong Kong investors. It would be better to introduce the fund of funds for local investors first,' he said. He said the funds would first be offered to professional investors and SFC approval would then be sought for sales to retail investors. Sun Hung Kai Financial Management chief executive Christopher Lee said the company had recently set up a special team to hand pick the world's best-performing hedge funds to sell to local institutional investors. Once the SFC changed the regulations, it would then sell to the retail public, he said, adding it had no plans to set up its own hedge funds.
