Chinese Hedge fund – As looser regulation has swept across China, new hedge fund launches are surging at an unheard of pace. This all comes at a time when some of the larger hedge fund managers have “gone incommunicado,” or worse yet, “missing” amid a government crackdown.
Asset management association notes dramatic increase in numbers of Chinese Hedge fund launches
The Asset Management Association of China (AMAC) counts 24,625 hedge funds as of December 2015, up from nearly 17,000 in January of the same year. The nearly 44% increase over the course of a year reveals a monstrous industry. A quick scan of the Prequin database, for instance, shows there are 19,000 global hedge funds listed, as a relative point of comparison. “Over the last six weeks, average weekly hedge fund product launches have exceeded 660, a dramatic increase from the five weekly product launches in August,” a report from Red Pulse, an institutional research service, noted in a December 15 report.
A key causation for the increase in hedge fund launches are new rules instituted in 2014 making it easier for individuals to acquire a hedge fund license.
China has sought to improve market liquidity and increase institutional participation in local markets, particularly following the dramatic rise and fall of China’s stock markets in 2015. As ValueWalk reported in June, the government is encouraging entrepreneurship in the financial services industry and it has led to a flood of fund registrations. “In the past 14 years I’ve never seen regulators so encouraging of innovation. In the investment industry, we’re taking the lead,” Feng Gang, chairman of private equity firm WinSure Capital, was quoted as saying.
Of the nearly 25,000 Chinese hedge funds, 54 have assets over 5 billion yuan, the Red Pulse report noted with a rapidly growing base.
Chinese Hedge fund restrictions accompany growth
The growth in China comes amid concerns over hedge fund managers flying fast and loose with regulations, potentially endangering market security, as the Red Pulse report noted:
Dysfunctional China financial markets following a price bubble and crash over the past year have been worrying. Authorities last month announced the arrest of billionaire investor Xu Xiang; eight other hedge fund houses were also unreachable. AMAC association urged companies to contact it within a required period, or else would classify them as being ‘missing’.
No more than two days after announcing that hedge fund ranks had swelled to near 25,000, the AMAC said that new operating guidelines instituted by regulators are looking to reign in rogue players who might be damaging market security. The AMAC, which released new guidelines to tackle “irregularities” that have cropped up, dealt with 143 violations through November in 2015, with most issues relating to public promotion, misleading advertisement and illegally holding deposits.
Many of the rules are designed to protect individual investors. Qualified investor requirements in China are rising, as they are in the U.S. Minimum subscriptions for individual investors if 1 million yuan with investor net assets of 10 million yuan. The minimum subscription for institutional investors is 10 million yuan. There is also a required “cooling off period” where contracts must not be signed for one day after terms have been agreed upon.
The investment minimum requirements come as restrictions were set for fund promotion, including public advertising, misleading or deceiving investors, belittling competitors and publicizing funds not owned.
The new restrictions come as four more hedge fund managers have gone “missing” over the last four weeks, including Shenzhen Hongfu Equity Investment Fund Management, China-Highway, Hubei Shangjia Xinrun Fund Management and China Chengxin.
The post Chinese Hedge Fund Launches Swell As Count Nears 25,000! appeared first on ValueWalk.
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Mark may hold positions in one or more of the companies mentioned in this article.