Asian hedge funds receive China wealth lifeline

Capital-starved Asian hedge funds may have got the lifeline they have been waiting years for - mainland investors willing to risk very large sums of money.

This new source of capital is a potential game changer for an industry that has been dependent on the whims of US and European fund flows.

It may also be a turning point in the movement of mainland wealth offshore as the world's second-biggest economy becomes more flexible on inbound and outbound investments.

Up until recently mainland capital was barely noticeable, industry sources say. But this year, more than half a dozen firms in Hong Kong, mainly investing in the China region, have gathered at least US$500 million from mainland investors.

Spurring mainland interest has been a strong performance by Asian hedge funds this year, as well as market reforms and the sense that high-yielding wealth management products on the mainland are becoming unsustainable as they draw scrutiny from authorities.

Investors include Zhang Lei, founder of Asia's biggest hedge fund Hillhouse Capital, members of the mainland's wealthy elite and mainland private equity firms. There is also at least one listed firm, gold producer Zijin Mining, which set up a fund with US$100 million in capital.

"There is clearly light at the end of a very long tunnel for Asian hedge funds in the form of indigenous capital," said Jay Moghe, Asia-Pacific head of alternative funds services sales for Deutsche Bank. "Investments from China could help to set the industry on a sustainable path to recovery."