Photographer: Johannes Eisele / AFP / Getty Images
Photographer: Johannes Eisele / AFP / Getty Images
China’s army of small hedge funds is pushing its better-known foreign competitors further ahead, with exorbitant profits helping them attract more assets.
The nearly 15,000 funds offered by Chinese executives averaged 30% last year, with the best performers rising tenfold, according to Shenzhen PaiPaiWang Investment & Management Co., which dwarfs the average profit of 12% worldwide for hedge funds.
The performance is another obstacle for global funds such as Bridgewater Associates and Two Sigma, which have struggled to grow China’s hedge fund market in China by 3.8 trillion yuan ($ 588 billion) since it opened to foreign companies four years ago. Local funds added a record 1.3 billion yuan to assets last year.
“Foreign players are disabled in China,” said Yan Hong, director of the China Hedge Fund Research Center at the Shanghai Advanced Institute of Finance. Although many world funds are ‘patient’, given the potential wealth to crack the Chinese market, their persistently small size contributes to regulatory constraints, making it difficult to distinguish them.
The early economic recovery of China as a result of the pandemic fueled stock market and commodity rallies, which led to the returns of all eight hedge fund strategies. Macro funds, which trade in asset classes, performed best, yielding an average of 41%, compared to the world average of 10%.
Shenzhen Qianhai Jianhong Times Asset Management added short bets on stocks seen to benefit from the pandemic, such as glove manufacturers and office supply companies, shortly after the outbreak, and later dived into consumer stocks and vaccine makers earlier as growth began to stabilize, according to China Times . Sy Jianhong Absolute Return No. 1-fund ended the year with a return of 831%, according to PaiPaiWang the best among equity funds.
Only three of the 32 foreign companies that have obtained a license to operate in the hedge fund market in China – UBS Group AG, DE Shaw & Co. and Winton Group Ltd. – raised more than 2 billion yuan from their rural private fund businesses – an important condition for gaining access to the interbank bond market, according to Yan, is crucial for bond and macro strategies.
Their small size also makes it harder to get distribution transactions from banks, the largest source of new customers, Yan said.
The lack of scale also hampers foreign funds ‘access to markets, such as off-the-counter options, because, according to Fangda Partners, they cannot meet Chinese brokers’ requirements for assets under management.
Top Quantities
Meanwhile, the number of local hedge fund businesses with at least 10 billion yuan in assets more than doubled last year to 63, according to Licai.com. According to Chinafund, growth is the most impressive among quantity funds, with the four largest triple assets last year.
“Money is increasingly attracting the biggest players, with the top 10% flowing in the most,” said Liu Ke, head of research at Hengtian Wealth Management. “The trend is accelerating.”
While some foreign quantitative firms are making strong inroads with foreign products investing in China, they are struggling to gain recognition on land as the underperformance of their fundamentally-driven strategies last year further exacerbates the attractiveness of their already short-term performance. to Qiu Huiming, founder of Shanghai Minghong Investment Management Co.
“Although foreign managers worldwide have a stronger name recognition, the past two years have shown that Chinese players still have the edge,” he said.
Chinese quantum has also sharpened further machine learning skills, with such funds provided by Howbuy Wealth Management Co. mainly beaten multi-factor strategies with 12 percentage points.
Minghong’s assets doubled last year to about 60 billion yuan, making it China’s largest quantity fund. Its foreign market-neutral product, which also invests in China, returned 32% last year, beating the global average of 3.4%, according to Eurekahedge.
Still, ‘it’s not a game where success is determined in the short term,’ Yan said. “As the policy further weakens, the benefits of foreign players may gradually emerge.”
– Assisted by John Liu and Dingmin Zhang
(Updates with information on foreign funds in China)