HSBC Launches Retail Fund Of Hedge Funds In Hong Kong

by Mary Swire, Investors Offshore, Hong Kong

27 January 2003

Last week HSBC became the second provider after JF Asset Management to issue a retail hedge fund in Hong Kong after the Securities and Futures Commission (SFC) loosened the rules to permit retail hedge funds late last year.

HSBC's offering is a fund of hedge funds. "In light of the recent market downturn and volatility in the markets, more investors are looking for alternative investment vehicles," said Bonnie Lam, a director of business development at HSBC Asset Management, which will market and distribute the fund.

In deference to the popular perception that hedge funds are risky, the SFC has imposed strict rules on managers of single hedge funds and funds of hedge funds, requiring them to have five years' hedge fund management experience, and limiting access for retail investors to fund managers with at least US$100 million worth of hedge funds under management.

"In the retail market, people think of hedge funds as high risk," Ms Lam said. "But our objective is to deliver high returns in all market conditions, to reduce volatility and spread risk."

The HSBC Global Strategy Hedge Fund will invest in a basket of about 40 hedge funds with various managers chosen from 700 possible candidates.

"The objective is provide positive returns from a portfolio of hedge funds, predominantly equity-related hedge funds, using mostly long-short strategies designed to provide returns regardless of market conditions," said Nigel Webber, the Hong Kong-based head of investment management at HSBC Republic Bank.

The fund will be available from January 22 to February 26. It carries a 5.25% subscription fee and a 1.65% annual management fee. It will also charge a 10% performance fee on returns over and above a benchmark return.

The SFC's guidelines divide retail hedge funds into three categories - single hedge funds, fund of hedge funds and hedge funds with a capital guarantee. For single hedge funds, a retail investor must subscribe at least US$50,000, while funds of hedge funds, seen to be less risky, require a minimum investment of US$10,000. No minimum investment has been set for guaranteed capital funds.

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