JV to launch China’s first multi-manager fund

Joint-venture Ping An Russell Investments is preparing to launch China’s first multi-manager fund for domestic high-net-worth individuals early in the third quarter of this year.

The firm, formally established in April 2011, will provide access to the same set of selected domestic hedge fund managers as Russell Investment will for US dollar investors through its forthcoming qualified foreign institutional investor (QFII) equivalent fund.

Ping An Russell has been researching domestic fund managers in China and has been preparing a multi-manager product by replicating US partner Russell’s business model.

Their fledgling product will be named MoM and will focus predominantly on hedge funds, confirms Tao Xiangjing, the joint-venture’s general manager for business development.

“But we will also look at segregated account products managed by fund management companies and collective management products by securities companies,” he adds. “In future we will also extend the scope of our research to mutual fund managers.”

Since the majority of hedge funds in China operate on a trust platform, Ping An Russell has chosen Bank of Communications International Trust as partner to launch MoM.

“We will sell this product through our partnering banks,” states Tao. “It is a private-placement product and the minimum investment is Rmb1 million.”

The venture’s approach is to select hedge fund managers to run one trust account, and monitor the trading and risk control of these managers on a daily basis and conduct a monthly review. “Our approach is active, but we will not intervene in external managers’ investments. Our job is more about risk control,” Tao notes.

At the same time, Russell Investment plans to launch a QFII product in the fourth quarter of this year, adopting exactly the same multi-manager strategy for US dollar clients to invest in selected hedge funds in China. Russell Investments was awarded a $100 million QFII quota last month.

Trevor Persaud, managing director of Asean and Taiwan for Russell Investments, says: “We understand that the Chinese market and variability amongst A-share managers is particularly high, so we see our QFII multi-manager fund as particularly relevant.”

In terms of manager selection, the firm chooses those who can prove that their investment strategies have achieved alpha. However, since China’s hedge fund industry is still in its early stages of development, Tao admits the pool of qualified managers is limited.

“We are wary of those managers who are still exploring and may change their investment strategies or styles,” Tao adds.

“We will monitor to see whether what is done is in line with what the manager says. External managers will need to submit the data of stock holdings and NAVs by the end of each month for us to check if the strategy has been executed as planned.”

In managing the MoM product, the firm will also assess external managers’ capability in risk management and compliance. “We will check their corporate governance, shareholder structure, incentive scheme, investment decision-making mechanism and risk management system,” says Tao.

Although Ping An Russell Investments will be the first to launch a multi-manager fund in China, Tao notes this strategy is not a new concept in the country. Securities firms have been offering FoF and trust companies have trust of trust (ToT) products with sub-trust accounts managed by hedge fund managers.

“The National Council for Social Security Fund (NCSSF) also has adopted this multi-manager strategy,” he adds. “It selected several external managers to run a portfolio. And it has proved the MM strategy successful as its investment portfolios often beat the market.”

While the multi-manager strategy has not gained traction in Asia, Tao believes the chief challenge it faces for acceptance in China is more the lack of professional portfolio managers to select funds and actively manage multi-manager product.

“Market acceptance is less a concern, in my view,” he says. “If investors accept the fee structure of existing FoF and ToT, they won’t find MM more expensive anywhere.”

An in-depth feature on multi-manager strategies in Asia will appear in the forthcoming (July) issue of AsianInvestor magazine.