Mon, 28/11/2016 - 13:42
The status of the hedge fund industry in China was the focus of roundtable event hosted by The Hedge Fund Standards Board (HFSB) and the Shanghai Lujiazui Financial City Development Authority in Shanghai on 23 November.
This event brought together 60 representatives from investors and managers who also discussed 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.
Topics covered included how 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.
In addition, 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, meanwhile, 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 resources for investors (institutional and high net worth investors) in their due diligence approach, and international managers usually work with local Chinese business partners to manage domestic portfolios and interact with local investors.
Misha Graboi, chief executive officer, PAAMCO Asia, says: “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, says: "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.”
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