Hedge Fund Breaks New Ground In Chinese Equity Market

by Carla Johnson, Investors Offshore.com

11 January 2005

Jersey-based firm Belgravia Asset Management will become the first investment house to offer foreign investors access to China's non-tradable shares, the Financial Times has reported.

Although non-tradable shares account for around two-thirds of the equity of listed Chinese firms, the market is highly restricted and shares can only be bought in off-market transactions.

Moreover, these non-tradable shares are typically held by regional and central governments and state-owned enterprises, thus the development of a network of political contacts is essential and the new fund will rely on the investment advice and connections of HongTa Financial Investments, part of HongTa Group, China's biggest tobacco group.

Duncan Hickman, Belgravia's chief executive, told the FT that the firm’s long term strategy was based on the belief that the Chinese capital markets will be further liberalised in the years ahead. However, he added that the fund hopes to make short term profits by transferring shares to other investors, such as foreign institutions that have failed to access China’s ‘A shares’ market.

The fund, which has no maximum limit on the amount of non-tradeable shares it could hold or trade, is planning to invest in 15 state-controlled companies in the power generation, manufacturing and food and beverage sectors, buying equity stakes of up to 20%, the report revealed.

Belgravia Asset Management has offices in Jersey, London, Dubai and Hong Kong. It runs a property fund and a precious metals hedge fund aimed at high-net-worth and institutional investors.

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