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Hong Kong Edges Towards Liberalising Hedge Funds

by Mary Swire, Investors Offshore, Hong Kong

19 March 2002

While Hong Kong's markets wait for the Securities and Futures Commission to make up its mind on the extent to which it will liberalise the marketing of hedge funds in the SAR, a lively debate continues in the financial sector over the question of minimum investment levels, and hedge fund operators have been making submissions to the SFC as part of its consultation exercise.

Swiss-based hedge fund operator Man Investment Products, said the minimum investment should be set at US$20,000. "A minimum investment requirement would be a good starting point for hedge funds to be introduced in Hong Kong, but the level of such a requirement should not be too high," said Matt Dillon, the firm's Asia-Pacific group manager. If the SFC set the minimum investment level too high, investors would be denied legitimate choice, Mr Dillon said. As a result many would be forced to allocate more of their savings than they might otherwise choose.

Johan Ahlstrom, managing partner of German-based Allianz, said that in many countries, regulators used a minimum investment requirement to ensure only sophisticated investors traded in hedge funds. "The SFC should not set a bar too high to ban the majority of retail investors from buying hedge funds," he said.

Mark Konyn, chief marketing officer in Asia of Dresdner RCM Global Investors, said: "Hedge funds are a new concept to Hong Kong investors. It would be appropriate for the SFC to put regulations in place that ensure only investors with better investment knowledge and capital can invest."

In fact there is not much doubt that the SFC will permit retail access to hedge funds. Last week, Financial Secretary Antony Leung said the city needs hedge funds in order to become Asia's pre-eminent financial center. "We would like the hedge funds to be located in Hong Kong," Leung said. "We are doing things both on the legislation and the regulatory side. More importantly our market provides more liquidity for hedge funds to operate."

A recent survey of Hong Kong Investment Fund Association members showed 39% supported a minimum transaction size to ensure that only more sophisticated investors could invest in hedge funds, with only 20% saying there should be no restriction.

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