Hedge funds readying for Hong Kong

Hedge funds readying for Hong Kong

Hedge funds prepare for Hong Kong to become gateway to access Chinese savers

The mutual recognition scheme that will allow Hong Kong to become a gateway to the whole of China has stirred interest among international hedge funds. Eyeing the country’s untapped $6.6 trillion retail savings market, several major hedge fund managers say they are preparing to take advantage of a the scheme when it’s launched.

International hedge funds have so far had limited access to Chinese investors. Last year, the Chinese government launched the strictly regulated Qualified Domestic Limited Partner programme, which allowed Chinese investors to make investments in foreign hedge funds for the first time.

So far, six hedge funds have been granted licences under the programme with a combined quota of $300 million.

International hedge funds are hopeful that the mutual recognition scheme could provide another avenue into the country. Although the list of approved strategies has yet to be made public, market participants expect the regulators to allow only vanilla funds operated by established managers to participate, at least initially. Funds including derivatives or leverage will be excluded.
The Chinese regulator might take into account the success of Ucits III funds in Hong Kong, which give Hong Kong investors access to liquid alternative strategies such as long/short equities. Certainly long-only equity funds would be top of the list.

However, some investment consultants warn that hedge funds should not get ahead of themselve. Hedge funds were unlikely to be explicitly excluded from the scheme, but added that their products might be last in line for approval – at least “in the first incarnation” of the scheme.

The scheme, which allows funds to invest renminbi raised offshore in China, was extended to London managers in November. Firms are awaiting approval for an RQFII licence.

An agreement between the Hong Kong Exchanges and Clearing and the Shanghai Stock Exchange, which will establish mutual stock market access between Hong Kong and mainland China, could provide an alternative route into China for hedge funds left out of RQFII and mutual recognition.

Source: http://www.efinancialnews.com