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First Retail Hedge Fund Launched In Hong Kong

by Mary Swire,, Hong Kong

11 December 2002

Less than two weeks after the Hong Kong Securities and Futures Commission gave approval for the first three retail market hedge funds in the SAR, JF Funds has launched a product aimed at long-term capital growth through investment in securities and derivatives of companies in Hong Kong, the mainland, and Taiwan. The company said it would favour long positions on undervalued companies with strong performance, and short positions on overvalued ones that have seen weak performance.

There will be an initial charge of 5% of the subscription price and an annual management fee of 1% of net asset value; the minimum investment is US$50,000.

JF Funds chief executive Douglas Eu said he was not worried that the bad reputation acquired by hedge funds during the Asian financial crisis would affect demand for his fund. "I think they are unrelated events to the extent that the losses in equities over 1997-98 were the result of underlying problems of the investment markets in the region," he said.

Chung Man-wing, head of the company's Greater China team, said: "We are not the type of hedge fund that is going to do 500 per cent leverage and set in one direction. That's not hedging - that's punting."

JF Funds had been given the green light for two single strategy funds, while HSBC is allowed to proceed with a fund-of-funds product. Since the SFC originally announced that it would permit retail hedge funds in Hong Kong last May, a stream of fund managers and support firms have announced that they will take part in the market, and many more funds will no doubt be launched in the months ahead.

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, will require a minimum investment of US$10,000. No minimum investment has been set for guaranteed capital funds.

However, 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.

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