E Fund to Set Up Hedge Fund
E Fund Management Co, China’s second-largest asset management company, plans to start the nation’s first officially registered hedge fund after the securities regulator eased rules in July.
E Fund will be able to raise money from high-net-worth individuals in separate managed accounts and use the same investment strategies as hedge funds in what the money manager with about 200 billion yuan ($29 billion) in assets says will be the first institutional hedge-fund product in China.
Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.
The nation with the world’s fourth-largest number of millionaires has expanded money-management products to meet growing demand.
Regulators introduced index futures and short selling in April, enabling investors to bet on falling as well as rising prices, to ease fluctuations after the Shanghai Composite Index jumped 80 percent in 2009 before slumping.
“This is opening up a new market seeking absolute returns, which could be quite attractive in a market that has been volatile,” said Dong Yiting, a senior analyst at Guosen Securities Co.
“Separately managed accounts at asset management companies now are in the position to operate in the way hedge funds in developed markets do with the same strategies at their disposal,” said Liu Zhen, a managing director in the index and quantitative investment department of E Fund who helps oversees the product.
The fund manager will charge “2-20 like” fees, said Liu, a former US-based money manager at Brevan Howard and DE Shaw.
Hedge-fund fees are typically 2 percent of the assets overseen and 20 percent of the profits made.
Liu declined to give details of the breakdown in fees.
Currently, funds in China can use only limited leverage because brokerage firms there don’t provide the kind of one-stop service as prime brokers in the United States, the funds need to put up more cash as collateral, and there are less securities available to borrow, said Zack Liu, head of quantitative investment at China Southern Fund Management Co.
The securities regulator in July this year said it would allow separately managed accounts at asset management companies to trade stock index futures based on clients’ needs. China Securities Regulatory Commission (CSRC) won’t regulate the investment purposes, proportion and information disclosure of the accounts targeted at wealthy individuals.
Details of the fund have been submitted to CSRC for registration, according to a company statement on Tuesday.
The fund will “seek to hedge market risk through stock index futures and other tools” and will “maximize returns of each unit of risk,” E Fund said in the statement.
E Fund had 200 billion yuan in assets under management by the end of March, according to its website.
Bank of China Ltd will be the trustee for the product.