Regulators have taken a cautious approach to hedge funds over the last two decades but may be prepared to relax the rules. Photo: AFP

China's 'sunshine funds' may get Shanghai listing green light

Shanghai exchange boss signals loosening of grip on hedge funds after two decades of caution towards the investment vehicles

The Shanghai Stock Exchange might let the mainland's hedge funds list on the bourse amid efforts by the country's securities regulator to boost institutional buying.

Bourse general manager Zhang Yujun told a seminar this week that the exchange would "boldly map out" new measures to better serve institutional investors. According to a fund manager at the seminar organised by the Shanghai exchange, Zhang said the hedge funds, known on the mainland as "sunshine private trust funds", would be allowed to register with and list on the bourse to broaden its reach to retail investors.

He did not give a timetable for the implementation. Zhang's reported remarks are a clear sign of a positive stand on developing hedge funds. Until now Beijing has encouraged institutional buying on the equity market by giving priority to the development of mutual funds, which raise money via public offerings.

At the end of last year, the country's mutual fund houses managed total assets of 2.2 trillion yuan (HK$2.69 trillion). The mutual funds, or securities investment funds, are listed on the nation's stock exchanges and are attractive to individual investors.

But the China Securities Regulatory Commission (CSRC) has a tight grip on hedge funds - offered privately to wealthy investors - due to worries that their aggressive investment strategies could cause market volatility. It was not until 2004 that the mainland approved its first hedge fund while allowing hedge fund managers to raise capital only through trust firms.

Mainland hedge funds had about 150 billion yuan in assets under management by the end of last year, less than 7 per cent of the mutual funds' asset value.

CSRC chairman Guo Shuqing, a reform-minded regulator, has been adamant in underpinning hedge funds since he took office late last year.

Zhang told the seminar attended by executives of 18 institutions that "all your requests will be actively studied by the Shanghai Stock Exchange".

"We will provide all necessarily needed services to help you," he said.

Most of the mainland's 100 million retail investors have fallen victim at one time or another to volatile trading on the stock market since it opened for business in 1990. Many tried to chase quick returns by trading on rumours, only to be exposed to heavy paper losses amid boom-to-bust cycles.

According to a survey by online portal Sina, more than one-third of mainland retail investors lost at least 30 per cent of their equity investments in the first half of this year. There are hundreds of professional asset managers in the country's hedge fund sector, most of whom ran mutual funds before jumping ship to the "sunshine trust funds" lured by the better pay packages.

This article appeared in the South China Morning Post print edition as: 'Sunshine funds' may get listing go-ahead