Hong Kong Regulator Calls In Hedge Fund Bosses After Fund Collapse

by Carla Johnson, Investors Offshore.com

28 June 2005

Hong Kong's financial regulator, the Securities and Futures Commission, has reportedly been stepping up its oversight of hedge fund activity in the city in recent weeks after a Singapore-based hedge fund racked up large losses on a number of derivatives trades.

According to the Financial Times, the SFC has called in top executives from around ten large hedge funds over the past month in a bid to ascertain the extent of leveraged positions in the Hong Kong market. Hedge funds often borrow heavily in order to maximise their returns for investors, although this also has the effect of magnifying losses.

It is thought that the SFC felt compelled to monitor the hedge fund sector following a spate of fund start ups in what has become one of the most barren periods for hedge funds in terms of performance. Data compiled by Eurekahedge show that 14 hedge funds were launched in Hong Kong in the year to the end of May 2005, more than double the number in rival financial centre Singapore, which saw six new funds in the same period, despite a considerably more relaxed registration and approval regime.

Aman Capital indicated last week that it had begun to return money to investors, but rebuffed rumours that it was on the brink of closing. It is thought that the $240 million fund, which trades currencies, commodities, equities and derivatives had lost 22% after the first five months of 2005. Some of the losses are supposedly linked to investments in the Korean stock market.

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