China is planning to allow overseas hedge funds to set up RMB-denominated products on the mainland and raise capital there reported the South China Morning Post, Hong Kong’s English-language newspaper, this week. The decision, still in its initial stage, was passed to the Shanghai Municipal Office of Finance Service. With a country of over one billion people, the world’s second largest economy and home to the highest number of millionaires outside of the US and Japan, the capital locked up there ready to be tapped into is enough to have even the most conservative hedge fund manager in Connecticut or Mayfair salivating. Of course, being China, things will be done the way it wants and those who do receive an overseas license are likely to face significant restrictions.
All of them will have to be registered in Shanghai and will be allowed to raise money from domestic clients but they will not have permission to invest in mainland markets: this is opposite to the restriction faced by foreign private equity funds located in China who can only invest in China. When these overseas hedge funds are likely to be allowed to launch Chinese funds is unclear at this stage. However, coupled with the news that South Korea recently opened up its hedge fund industry, there could soon be rival suitors to the Asian hedge fund throne which up until now has been solely contested between Hong Kong and Singapore.