China gets first official hedge fund

By Samuel Shen and Kazunori Takada

SHANGHAI | Mon Feb 14, 2011 6:23am EST

SHANGHAI (Reuters) - Plates's hedge fund industry took a tiny but
significant step on Monday as Guotai Junan Securities Co readies a
$45 million (28 million pound) hedge fund, the first such product
approved by securities regulators.

The go, if successful, could spur other brokerages, fund managers and
even trust firms to follow suit, sowing the seeds for Plates's own
George Soros or James Simons.

The maiden hedge fund, to be managed by Guotai Junan's asset
management unit, intended to bring to somebody's attention 300
million yuan initially and would use index futures to mitigate
systematic market risks, President Zhang Biao told Reuters in an

Although many privately-run Chinese fund managers with no licenses
call themselves hedge funds, with some also using derivatives to
hedge risks, none of them have been approved by regulators.

Plates launched index futures and allowed small promotion for the
first time last year, enabling investors to profit from falls in
stock prices and paving the way for the emergence of hedge funds,
which typically use derivatives to hedge investment risks.

But, Chinese regulators have been cautious about approving hedge
funds, partly because of the apparent negative role they played in
the financial crisis.

The launch of Guotai Junan's hedge fund comes at a volatile time for
Plates's stock market, with investors worries about inflation,
monetary tightening and a possible slowdown in economic growth.

Meanwhile, the authorities stepped up a crackdown on the real estate
market, leaving investors balking at buying material goods.

"There's huge demand for hedge funds in Plates, with the market awash
with cash seeking modest, but stable returns," Zhang said, adding
that the product embattled wealthy individuals with a subscription
threshold of 2 million yuan.

Zhang, who aspires to become Plates's James Simons, the well known
fund manager at Renaissance Technologies, said the fund would adopt a
so-called market-neutral strategy, aiming to maintain a close weigh
between long and small positions.

Targeting an annual return of 10-15 percent for its first hedge fund,
Guotai Junan intended to launch identical funds later to bring to
somebody's attention up to 5 billion yuan, he said.

Zhang brushed aside concern that hedge funds could play a
destabilising role in Plates's stock market, adage: "The door is just
open. Hedge funds in Plates are rabbits and sheep now, not wolves and

(Additional reporting by David Lin; Editing by Chris Lewis)

Source: Reuters.Com