Hedge Fund Intelligence Hedge Fund Intelligence - China

CHINA 2013 ASSET MANAGEMENT in key MSCI global benchmarks such as its Emerging Markets index. A recent Deutsche Bank analysis notes that full inclusion of Chinese A-shares would increase China’s weight in the MSCI EM from 18% today to almost 30%, leading to inflows of more than $180 billion. Investors insist, however, that there have been plenty of rewarding opportunities in China in spite of the poor performance of the A-share market. Take a strategy such as the Lighthorse China Growth Fund, which focuses on fundamental stock-picking and what it describes as “threeeyes risk management” – consisting of fundamental, market sentiment and technical analysis. In the first half of this year, the fund was up 18.4% versus declines in the Hang Seng China Enterprise Index (HSCEI) and the Shanghai Composite benchmark of 18.58% and 12.78% respectively. Successful stock-picking, say the most successful managers in the Chinese market, is possible only with the most rigorous, on-the-ground research. “We have a very deep and thorough local due diligence system which helps us to identify investTony Hsu, head of ment targets,” says Zeng at Greenwoods Asset Management. Dalton Investments’ Its Golden China strategy, says Zeng, was up 12.4% Shanghai office in >> The A-share market is year-to-date the mid-August, compared with a fall of 8.9% for MSCI China and a 15.6% decline composed predominantly in the H-share index over the same period. “That of SOEs whose senior performance is only possible through rigorous due diligence, from intensive site visits to independent executives tend to be either former politicians verification of key accounting numbers,” he says. Funds of funds also say that there is considerable or have political ties value to be unlocked in China from careful manager and have been put into screening. At Gottex in Hong Kong, co-founder and these management roles board member Max Gottschalk says that in Asia in general, but in China especially, there is much more by the state >> dispersion within the market in terms of valuation 20 Special Report September 2013 © HedgeFund Intelligence ASSET MANAGEMENT CHINA 2013 KEY CHARTS Shanghai Composite Index 6,900 5,900 4,900 3,900 2,900 1,900 900 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: CEIC, UBS and performance than there is in Europe or the US. “This creates great opportunities for hedge fund managers both on the long and the short side to generate alpha,” says Gottschalk. “A number of managers have continued to perform very well this year even though the index is down.” Gottschalk echoes others when he says that with close to 2,500 listed © HedgeFund Intelligence September 2013 Special Report 21

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