Douglas Eu 1985: Graduated from the London Business School. 1987: Joined Jardine Fleming Hong Kong as an analyst specialising in local companies. 1991: Appointed Investment Man ager specialising in Greater China at Jardine Fleming. 1998:Appointed Director of Jar dine Fleming Investment Management. 2002: Appointed Chief Executive of JF Funds. LEADING LOCAL fund house JF Funds waded into unchartered waters last week with the launch of Hong Kong's first hedge funds focused on the markets in Greater China. JF is among the first applicants, along with banking giant HSBC, allowed by the Securities and Futures Commission to sell hedge funds to retail investors. And judging by the long hours JF Funds chief executive Douglas Eu spends on overseeing the training of his investment advisers and distributors, one can conclude he has a big task on his hands. 'It is a challenging job,' he says rather modestly, adding that if he can get 'one investor at a time' he will consider his job well done. But that accolade seems a long way off, at least for the moment. Hedge funds are not particularly hot among Hong Kong investors or, for that matter, any retail investors in Asia. Most have not forgotten the dark days of 1997, when hedge funds were blamed for the downfall of various stock markets and currencies in the region. Many investors still remember the pronouncements of Malaysian Prime Minister Mahathir Mohamad blaming hedge funds and currency speculators for Asia's financial market woes. And so far this year their performance has been lacklustre, to say the least. According to United States-based Van Hedge Fund Advisers International, the average hedge fund in the US lost 2 per cent in the first 10 months of this year. 'Hedge funds have had a bad reputation because there has been so much secrecy around them . . . that's why there has been so much negative news, negative press about them,' admits Mr Eu. 'People have prejudices [against hedge funds] which are not accurate.' One reason for these prejudices could be a lack of education about hedge funds. The SFC has made a concerted effort since last year to make retail investors in Hong Kong aware of the vagaries of investing in hedge funds. But a lot remains to be done before investors are comfortable about investing in these instruments. Mr Eu believes that people's perceptions about these funds will change over time, citing the example of the launch of index-linked funds in the United States by Vanguard. It took almost 15 years for investors to warm to them. 'It is an education process. I think over time people will understand them [hedge funds], the same way they did when Vanguard introduced index funds in the US,' he said. Apart from training investment advisers in Hong Kong, JF Funds is organising free investment workshops for retail investors, the first of which is to be held on Tuesday . 'All our investment advisers are trained and I have spent lots of hours training them,' Mr Eu said. He said JF would for now sell the funds in Hong Kong directly, without involving any distributors. The reason for this is that, under SFC regulations, all sellers of hedge fund products have to be trained. 'Distributors in Hong Kong would be doing similar exercises [training staff] before we decide to sell through a third party,' Mr Eu said. 'Our funds are single-manager funds, which carry the highest degree of risk. We have to be careful. We feel as a company we have a higher duty to the SFC. The sale of the products should be carried out in a proper way.' Apart from training his investment advisers, Mr Eu said he faced a major task educating investors on the difference between investing in traditional and hedge funds. 'With a traditional fund people are comfortable if, for example, they buy a Hong Kong fund . . . They effectively get two types of risk with the fund. They have a market risk and they also have a manager risk. 'With [hedge funds] the objective is to minimise the market risk by investing in any investment product that gives a return,' Mr Eu said. 'The only reason that you get a return is because you take a risk, and it is very important to understand what risk you are bearing. . . 'With these funds you try to eliminate the risk by going long or short on a market. But you still have the manager risk and the strategic risk, which is very complicated to explain to people.' To remove a lot of the complications, JF decided to launch hedge funds based on the Asia and Greater China markets. The two hedge funds, the JF Asia Absolute Return Fund and the JF Greater China Absolute Return Fund, take advantage of the fact that people have a far better understanding of Asian markets than, say, Latin American or European markets. 'I think Greater China is a key market segment for us,' Mr Eu said. 'There are a lot of investors in Hong Kong who understand the Greater China markets. These markets give us an ability to short in Hong Kong. In future we will have the ability to short in Taiwan and maybe some day we will be able to short in [the mainland]. Hong Kong and Taiwan will give us a chance to run a balanced fund.' The Asia Absolute Return Fund is managed by Roger Ellis, JF's chief investment officer, while the Greater China fund is managed by Chung Man-wing, head of the company's Greater China team. Both the funds require a minimum investment of US$50,000. The investment philosophy for the Greater China fund is simple - JF intends to invest in Greater China-related securities principally, but not exclusively, listed in Hong Kong, Taiwan and the mainland. JF said the fund was unlikely to invest in the mainland's A shares until the qualified foreign institutional investors (QFII) scheme and its restrictions become clearer. As for the fund's target market, Mr Eu said he was looking for investors who would buy hedge funds as part of their portfolios. 'Our target market is someone who has more than US$50,000 to invest . . . I would say something in the region of US$100,000. He would be better off if this [hedge funds] was part of his portfolio.' JF is not giving any guarantees on the returns the two hedge funds will give at the end of the first year. 'No manager can predict what kind of return the fund can give you. We don't have an investment process that will give us a predictable stream of return. We are giving you a tool to help you build a better diversified portfolio,' Mr Eu said.