Beijing plans to foster the growth of the nation's hedge funds, a deputy central bank governor said in a rare public comment by a senior official about the controversial sector. Liu Shiyu, deputy chief of the People's Bank of China, told a financial forum over the weekend that Beijing would publish supporting policies on private funds for equity investment and would better police their operations, according to the Securities Daily. Mr Liu did not elaborate, but analysts said his remarks signalled that top regulators may level the playing field for both mutual funds and hedge funds on the domestic equity market. The China Securities Regulatory Commission gave mutual funds a leg up in the late 1990s, encouraging the development of securities investment funds and hoping institutional investors could set a healthy tone for the volatile market. To date, nearly 60 fund houses manage more than 2 trillion yuan (HK$2.29 trillion) of assets on the mainland. Privately raised funds were illegal on the mainland, though some existed in the guise of 'consulting firms', and they were synonymous with price manipulation after a series of scandals broke out. In 2001, four consulting firms, de facto hedge fund managers, were found to have manipulated the price of Guang Yorkpoint Science & Technology the previous year when the stock value quadrupled to more than 100 yuan in three months. In 2004, Zhao Danyang, known as the father of China's hedge funds, launched the country's first trust product earmarked for securities investment. Through a loophole, it became the mainland's first legal private fund for the stock market. To date, about 200 private funds have imitated Mr Zhao's trust product, managing about 20 billion yuan of assets. 'Hedge funds are a good complement to the mutual funds,' said United Securities analyst Liu Xiangning. 'With appropriate regulatory directives and policies, the sector can have its day in the sun.' A clutch of star managers with mainland mutual fund companies have jumped ship to private funds in the past few years, attracted by their hefty pay packages. In January, the regulator announced that mainland brokerages would be allowed to launch hedge-fund-style products to manage the assets of wealthy individuals. But the business has yet to take off amid the weak market sentiment. In this year's first half, the mainland's 364 mutual funds lost a combined 1.08 trillion yuan while their fee income jumped 120 per cent to 18.8 billion yuan. Cash pools Value of assets managed by some 200 private funds as trust products, in yuan: yuan 20b
