The Hedge Fund Standards Board (HFSB), the global standard-setting body for the alternative investment industry, and the Shanghai Lujiazui Financial City Development Authority hosted a roundtable on 23 November in Shanghai. This important roundtable brought together 60 representatives from investors and managers (China-based and global) to discuss the state of the Chinese hedge fund industry.

The discussion focussed on the status of the hedge fund industry in China, the domestic investor structure and how international firms can do business in China. A panel of international institutional investors outlined global due diligence expectations and minimum standards local managers need to meet in order to attract international capital. 

Some of the key insights included:

Local managers can benefit from exposure to international investors, particularly in terms of understanding what institutional investors expect in areas such as risk management, governance and investor disclosure – the Hedge Fund Standards provide a blueprint for firms to adopt in all of these areas.

Global institutional investors usually have a longer term perspective and look for domestic managers who can articulate their investment approach over the long term and who have a strong risk management culture. These investors tend to be less focused on individuals who are just successful traders.

Domestic investors need to develop strong due diligence practices, and there is a potential role for funds of funds to help the high net worth segment scrutinise individual managers. The Hedge Fund Standards and the HFSB Toolbox provide useful resources for investors (institutional and high net worth investors) in their due diligence approach.

International managers usually work with local Chinese business partners to manage domestic portfolios and interact with local investors.

Comments from speakers and panellists during the event included:

Misha Graboi, Chief Executive Officer, PAAMCO Asia: “Global institutional investors apply the same due diligence approach, regardless of where they invest. Chinese managers seeking to attract offshore capital should treat due diligence meetings with global investors as an opportunity to benchmark their practices against global practices, and they should use the Hedge Fund Standards as a template to strengthen their operational approach.”

Richard Johnston, Managing Director and Head of Asia of Albourne Partners and member of the HFSB APAC Committee:  "The scrutiny of institutional investors does not stop after the initial due diligence process. Once invested, investors need regular risk reporting to monitor the manager’s activities and assess the risk contribution of individual funds in the context of their broader investment portfolios.”

Thomas Deinet, Executive Director of the HFSB said: “We published the Chinese translation of the Hedge Fund Standards in 2015 and have seen great interest from the Chinese hedge fund manager and investor community in our work. The HFSB stands ready to share its expertise and encourages Chinese managers to use the Hedge Fund Standards and the HFSB Toolbox resources to strengthen their approach.”

WANG Hua, Director General of Shanghai Lujiazui Financial City Development Authority said: “We are delighted to collaborate with the HFSB and to bring leading global investors and managers together with the domestic hedge fund industry. The hedge fund industry is developing very fast in China, and Lujiazui is a leading center for the industry with over 1,500 hedge fund managers registered with AMAC. Many of these managers are recognised as leading players.  We look forward to working with the HFSB in the future.”

Speakers and panellists at the event included:

Thomas Deinet, Executive Director, Hedge Fund Standards Board (HFSB)

Feng Ge, Managing Partner, Trustbridge Partners

Misha Graboi, Chief Executive Officer of PAAMCO Asia

WANG Hua, Director General, Shanghai Lujiazui Financial City Development Authority

Richard Johnston, Managing Director, Head of Asia, Albourne Partners

Ren Kaifeng, Director Finance and Shipping, Shanghai Lujiazui Financial City Development Authority

Sidney Ma, Director of Investor Relations, Springs Capital

Fred Tian, Head of Investment Solutions, Winton Capital Asia

Andy Wang, Deputy General Manager, Rosefinch Investment

KONG Wei, Senior Partner, Zhong Lun Law Firm

SUN Wei, Director of Shanghai Lujiazui Financial City London Office

Raymond Yin, Partner, Chongyang Investment

The HFSB was formed in January 2008 as the standard-setting body for the alternative investment industry, bringing together managers and investors globally to help determine how the industry should operate. It is the custodian of the Hedge Fund Standards, which create a framework of transparency, integrity and good governance for the industry, facilitate investor due diligence and complement public policy. The HFSB is supported by more than 125 alternative investment managers, with over $1 trillion in aggregate assets, and by more than 60 institutional investors investing over $600 billion in hedge funds. The Hedge Fund Standards and the full list of signatories and supporters are available at www.hfsb.org.

The Lujiazui Financial City Development Authority is a statutory public service institution in charge of coordinating the public affairs of the Lujiazui Financial City in Shanghai. The objective is to position the Lujiazui Financial City as dynamic, open and efficient economic centre by promoting innovation in the areas of finance, trade and shipping.