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BlackRock goes hi-tech, low-fee as its appeals to China’s wealthy investors with its first hedge fund

BlackRock’s new China A-Share Opportunities Private Fund 1 will charge well below the 2 per cent fee and 20 per cent carried interest that rivals levy

PUBLISHED : Wednesday, 25 July, 2018, 11:00am
UPDATED : Wednesday, 25 July, 2018, 11:50am

The world’s biggest money manager is pushing into China’s cutthroat hedge fund market with an offering that charges less than half the typical fees and has delivered above-average returns.

BlackRock started selling the fund to Citic Securities clients last week, and will charge a 0.75 per cent management fee while taking 10 per cent of profits, according to people familiar with the matter. An offshore version of the strategy, which makes stock picks based on big data gleaned from social media and other sources, delivered an average 22 per cent annually from November 2012 through last year, said the people.

The US$6.3 trillion money manager is vying with global rivals as well as thousands of local competitors in one of the world’s fastest-growing investment markets, where millionaires are being created at a dizzying pace. UBS Group and Bridgewater Associates are among firms that are taking advantage of the historic opportunity after the Chinese government opened the private securities fund business to foreign managers.

BlackRock may have an edge in the crowded market: For the new China A-Share Opportunities Private Fund 1, it’s charging well below the 2 per cent management fee and 20 per cent carried interest that Chinese rivals levy.

Returns posted by the offshore version of the strategy also beat the 17.7 per cent average of 495 Chinese stock funds that have a track record for the five years ending 2017, according to private fund tracker Shenzhen PaiPaiWang Investment & Management.

The China A-Share Opportunities strategy has been trading through channels such as the Qualified Foreign Institutional Investor programme that allow global investors access to Chinese shares. The new fund lets BlackRock target affluent mainland investors for the first time, while allowing it to be free of investment restrictions that the offshore fund is subject to.

BlackRock declined to comment, and representatives at Citic Securities didn’t immediately respond to a request for comment. In a June statement announcing the local registration of the product, BlackRock’s Asia-Pacific Chairman Ryan Stork said the company was excited by the firm’s ability to meet demand “with products powered by our competitive edge in technology.”

Executives have said that they see opportunities in China even as the escalating trade war and the risk of rising defaults has stung the nation’s stock and bond markets. Chief Executive Officer Larry Fink said in his annual letter to shareholders earlier this year that increasing the firm’s presence in high-growth markets such as China is “one of the most critical priorities” for the firm.

BlackRock’s fund tracks changes in retail investor sentiment by analysing social-media data including about 100,000 chat-room postings a day on Chinese websites like Eastmoney.com and Xueqiu.com. It buys stocks that are attracting growing attention and sells those losing investor interest, said the people, who asked not to be identified because the details haven’t been publicly disclosed. With individual investors driving an estimated 85 per cent of the nation’s equity trades, that’s a strategy that could prove fruitful for the fund.

The model also examines day-to-day changes in wording contained in brokerage reports, and analyses metallic reflection data captured by satellites to precisely gauge real-time economic activity on the ground, they said. Official media publications, such as People’s Daily, are also closely monitored for signs of government support or potential risks, the people said.

BlackRock’s product will be available to qualified China Citic clients from July 16 to July 25, and the number of investors is capped at 200, the maximum allowed under Chinese rules, the people said.

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