Greater China hedge fund interest dips

Greater China hedge funds have seen a drop in demand, with investors growing more discerning between those largely running portfolios of Chinese stocks listed offshore, and ones more focused on domestic A-shares, finds a Credit Suisse poll.

Net demand for Greater China hedge funds among investors fell to 18% this year from 24% in 2013, according to Credit Suisse’s latest hedge fund investor survey.

This is despite a benchmark-beating 18% performance by Greater China hedge funds in 2013, according to Eurekahedge figures, against a -6.7% drop in the Shanghai Composite index and 2.9% gain by the Hang Seng index.

Additionally, there is a split in investors looking for managers that largely trade Chinese stocks listed abroad versus those who are focused on onshore-listed A-shares.

Chinese stocks listed overseas, such as on the New York Stock Exchange, generally do better than their onshore counterparts as they have higher market capitalisations.

On the other hand, investors seeking to gain greater exposure to onshore A-shares are seeking out China managers with Cayman-domiciled or other offshore structures.  

However, these managers tend to have heavy weightings in Chinese companies listed in Hong Kong, given the limited supply of qualified foreign institutional investor (QFII) quota. which enables them to tap the A-share market.

Some managers ‘borrow’ QFII quota held by large institutions, while others are applying for – and in some cases being awarded – QFII and renminbi QFII quota of their own.

Meanwhile, interest in Japan-focused hedge funds has shot up over the past two years, with 33% of investors indicating they are increasing their allocations to Japan or considering doing so.

This compares to 16% last year and 7% in 2012, and follows a watershed year for Japan funds in 2013, when they were the best performers last year on a global basis, gaining about 25%.

Only developed Europe topped Japan in terms of investor demand in the survey, with 43% signalling an interest to allocate to the region, which is recovering from the eurozone crisis.

Asia-Pacific funds garnered 25% of investor interest, down from 35% in 2013, while net demand for global funds stood at 26%, up slightly from 22% in 2012.

Overall, there is an optimistic sentiment on the industry, according to those polled – which comprise private banks, funds of hedge funds, family offices, advisers, pensions, insurers and endowments, and which collectively represent $1.16 trillion of hedge fund investments.

Hedge fund investors predict that global hedge fund AUM will grow about 12% this year to reach $2.8 trillion.