Thomas Chan, director of the independent financial adviser Harris Fraser (International) Ltd, said recently: 'Even now investors don't really understand what hedge funds are, and they only think of them as macro global investments. ' He also suggested that the level of interest in hedge funds is dependent on economic conditions: 'Investors only think about hedge funds when they lose confidence in the local markets. Now the economy is picking up again they believe they can handle their own investments and make a profit,' he said.
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According to David Chapman, senior portfolio manager of Towry Law (Asia) HK Ltd, investors are definitely more interested in hedge funds this year because of concerns about the stock markets. He commented: 'Most Hong Kong clients are going for conservatively managed funds where the prime objective is capital preservation. In Taiwan it's different - they are looking for exciting hedge funds because they are used to volatility and can live with it. Here [in Hong Kong], they want returns of 12 per cent to 15 per cent and very little volatility."
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The fact remains that of the 1,700-plus investment funds authorised for sale in Hong Kong, there is only one hedge fund, and even that one prefers to go by another name. Matt Dillon, regional manager, Asia Pacific, for EDF Man Investment Products (Hong Kong), said: 'Because of the misconceptions and preconceived ideas around hedge funds, the industry tends to prefer the term alternative investments.'
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The firm's AHL Diversified Futures fund was introduced in Hong Kong in May 1998. As of the end of October 2000 its assets were $39 million. Although the fund has attracted what Mr. Dillon describes as a "loyal following," it has not been an easy concept to sell to Hong Kong investors who 'think it's a high-risk, high-return product or somehow safe because you've hedged your exposure.'

However, the fact that the fund is locally authorised has made it easy for financial advisers to market it and to include it in investment seminars. Although advisers in Hong Kong can provide information about specific hedge products if it is requested by their clients, they cannot actively market unauthorised funds. As long as there is only one authorised hedge fund in Hong Kong, investors' exposure to alternative investments will undoubtedly remain limited.