Hedge funds open by their thousands in China as they pile into US$9 trillion equity market in search of outsize returns

New fund offerings swelled to about 1,500 in July after running at a 1,217 monthly pace in the first half

That is the fastest growth pace since at least 2015, according to fund tracker Shenzhen PaiPaiWang Investment & Management

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A man checks stock prices through his smartphone at a brokerage house in Beijing on Wednesday, Jan. 9, 2019. Contrary to global conventions, China denotes gains and advances in red and represents losses and declines in green. Photo: AP Photo

Published: 11:46am, 30 Jul 2020Updated: 11:46am, 30 Jul 2020

China’s insatiable appetite for equities is stoking the fastest growth in years for its US$385 billion hedge fund industry.

New fund offerings swelled to about 1,500 in July after running at a 1,217 monthly pace in the first half, the fastest since at least 2015, according to fund tracker Shenzhen PaiPaiWang Investment & Management. The country’s largest quantitative hedge fund firm registered nine new products last week alone.

The influx could give fresh impetus to China’s US$9 trillion equity market, where a dramatic rally that had pushed indexes to five-year highs is now slowing. Regulators have encouraged the development of products for institutional investors like banks and pension funds, local media reported this week, and will allow its better capitalised insurers to own more stocks in their portfolios.

Still, critics caution that taking such market-supporting measures too far may lead to the whirlwind trading that fuelled massive bubbles in 2015 and 2007. Many Chinese hedge funds, known locally as private securities funds, borrow money to amplify returns so they can stand out from thousands of competitors.

“If a fund manager is lagging the market, the pressure will be huge,” said Zhang Qingyun, deputy general manager of China Vision Capital Management, a Beijing-based private fund.

Private funds cater to domestic institutions and qualified investors with the ability to commit a minimum 1 million yuan (US$143,000). While many of the funds are long only due to China’s restrictions on securities lending, they charge management and performance fees in ways similar to hedge funds. The industry oversees about 2.7 trillion yuan across more than 45,000 funds.