China Hedge Fund Industry Could Double

Nov 3 2014 | 11:18am ET

China’s hedge-fund industry is set to double in size over the next four years, as the regulatory regime for such products comes into focus.

Chinese hedge funds could manage 1.1 trillion yuan (US$180 billion) by the end of 2014, according to Z-Ben Advisors. The industry currently has about 540 billion yuan (US$88 billion) in assets under management. The meteoric growth comes as China’s securities regulators provide more clarity to industry players, just a year after offering recognition for the first time.

In August, the China Securities Regulatory Commission promulgated a new set of rules, covering registration, disclosure and fundraising. The regulations allow funds to register—independent of a trust company—with the Asset Management Association of China.

“For the first time, in a rather comprehensive fashion, they have put in place the regulatory regime for private funds in China, and this is fairly groundbreaking,” Sidley Austin lawyer Joseph Chan told The Wall Street Journal.

What’s more, the industry has a huge amount of room to grow: Most Chinese hedge funds are small, and many invest in just a single stock. One would-be hedge-fund honcho in the world’s largest country, Zhou Xin, notes that “there isn’t already a dominant player in the market.”

“This kind of evolution is necessary, and it is good for the market in the long-term,” Ping An Russell Investment Management’s Brian Ingram told the Journal. “It is going to leaven out the managers who have the ability to become fully-fledged asset managers, versus those shops that are going to just retain their advisory role.”

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