Hedge Fund Intelligence HFI Hong Kong Report April 2014 | Page 22

HONG KONG 2014

Hong Kong, chooses to play his cards close to his chest and never talks to the
press? Few investors in his China equity long/short fund, which was launched
at the start of 2013, are likely to complain as long as it continues to perform as
it did in its first year, when it delivered a 35% return.
“Look at it from the perspective of some of the super-stars of the China fund
sector,” says one market participant. “These managers are in many cases already
running several billion dollars, and have built up an impressive track record.
They don’t care too much about US compliance requirements because they
don’t manage any US institutional money. They’re not comfortable with offering managed accounts or daily positional reporting because they are concerned
about replication. That does not make them fundamentally flawed managers.
Some probably rank among the best managers in the world.”
That may be. But others say that a number of QFII sub-advisers and so-called
sunshine funds that have a presence in Hong Kong are already at, or near, the
magic convergence point at which they can offer China-driven performance based
on local knowledge, blended with internationally recognised operational practices.
The privately managed sunshine funds, according to a KPMG report, derive
their name from “the contrast between the transparent and regulated environment that sunshine funds operate within versus the privately managed,
self-funded world of the ‘underground’ hedge fund.”
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“Our experience is that some – but not all – China
managers with a very good track record have solid and
transparent investment processes,”says Max Gottschalk,
chief executive of Gottex Asia in Hong Kong.
He speaks with considerable authority, given that
since its acquisition in 2012 of the Hong Kongbased Penjing Asset Management, Gottex has become one of the largest fund of hedge funds in Asia.
“Some are more secretive than others, especially at
the larger end of the market, and investing in new
funds requires a fair amount of due diligence. But
on the whole we are comfortable with the quality of
reporting of China managers with strong researchbased capabilities on the mainland.”
Besides, Gottschalk adds that the strengthening of
operational procedures by some of the less experienced managers should be a symbiotic process. “We
have helped some managers to reach compliance
standards that international investors will be comfortable with,” he says.

MUTUAL RECOGNITION

Colin Lunn, head of fund
services for Asia-Pacific
at UBS in Hong Kong
>> The mutual-recognition
project will open up an
important avenue for
distribution of hedge
funds in China using Hong
Kong-domiciled vehicles >>

The process of convergence will be galvanised over
the much longer term, say local bankers, by the investment funds mutual-recognition arrangement between Hong Kong’s SFC,
CSRC and China’s State Administration of Foreign Exchange (SAFE).
At the seventh annual conference of the Hong Kong Investment Funds Association in December, the SFC and CSRC disclosed that they were in the final stretch
of the mutual-recognition project. Their working groups are now working on the
final details covering areas such as minimum AUM, fund managers’ experience in
terms of years in operation and parameters on the percentage of local investors.
At UBS, Lunn says that in its initial stages the mutual-recognition project is
likely to apply only to authorised mutual funds, but that over time its remit will
© HedgeFund Intelligence

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