Shenyin Wanguo to advise Shin Kong on China investments

In the second cross-strait investment advisory deal to date, Shenyin Wanguo Asset Management (SWAM), a unit of mainland brokerage powerhouse Shenyin Wanguo Securities, will advise on the upcoming Shin Kong Cross Strait Select Fund. (China's sovereign wealth fund China Investment Corp (CIC) is a shareholder in Shenyin Wanguo Securities and an investor in SWAM's funds.)

The fund will be launched by Shin Kong Investment Trust, the fund-management arm of Taiwan's Shin Kong Financial Holding. The Cross Strait Select Fund has a target allocation of 70% to China-related equities and 30% to Taiwan-listed stocks. The fund may allocate up to 10% of its assets to China's A-share securities, accessed through third-party QFII channels and p-note securities. 

SWAM will sub-advise the fund's investments in A-shares and Hong Kong-listed H-shares and red-chip stocks. Ray Lee, manager of the fund at Shin Kong Site, will be responsible for implementing Taiwan positions.

Investment performance will be benchmarked against the MSCI Golden Dragon index -- an aggregate of the MSCI Hong Kong Index, MSCI China Free Index and MSCI Taiwan@65% Index (which has an inclusion weight at 65% of its market capitalisation in the MSCI index series).

Shin Kong Site has already received the go-ahead by Taiwan's Financial Supervisory Commission to start raising assets for the fund from April 28. The fund house is authorised to raise up to NT$10 billion ($318 million) for the fund.

Eddie Kir, director for sales and marketing at SWAM in Hong Kong, expects the fund to attract between $150 million and $200 million.

The Cross Strait Select Fund is a separate offering from the Shin Kong China Growth Fund which was launched by Shin Kong Site on April 20 last year. The China Growth Fund had a total of NT$1.46 billion under management as of the end of March.

The China Growth fund's investment objective allows it to invest in China-listed A- and B-shares, Hong Kong-listed red-chips and H-shares, as well as Singapore-listed Chinese securities. Unlike the Cross Strait Select Fund, however, the China Growth Fund does not include exposure to Taiwan securities.

Shenyin Wanguo's deal with Shin Kong is the second of its kind. In late October -- ahead of the finalisation of the China-Taiwan financial memorandum of understanding, which came into effect in January -- China Asset Management's subsidiary office in Hong Kong awarded an exclusive, two-year China investment advisory deal to Cathay Securities Investment Trust. (Cathay Site is the fund-management arm of Taiwan's biggest financial firm, Cathay Financial Group.)

Shin Kong's current offering with SWAM will come with a target allocation for China and Hong Kong at 70%, slightly higher than Cathay's offering with China Asset Management, which has a 60% target.

In-house fund offerings by Cathay Site or Shin Kong Site enjoy backing in asset raising by affiliated banks, life insurance firms and brokerages under the umbrella of their financial holdings.

The deal with Shin Kong is particularly good news for SWAM, since Shenyin Wanguo recruited Kir and hedge fund star Alex Mou from rival firm China Everbright Asset Management last summer. The Shin Kong deal may well be an indication of Mou's pulling power.

At China Everbright AM, where he started the Dragon Fund, Mou boasts an annualised return of 19.7% between September 2004 and July 2009. His Sharpe ratio and Sortino ratio were 1.71 and 4.18, respectively. Moreover, from the inception of Mou's Global China Alpha Fund at SWAM on July 29 to April 30, his fund had already outperformed the HSCEI and MSCI China index by 20%.

Prior to Everbright and SWAM, Mou worked as portfolio manager at Frontera Capital and Brooke Capital, where he was most noted for his strength in special-situations and long/short strategies. Before he crossed to the buy side, Mou's CV as a sell-side analyst is dotted with names from Goldman Sachs to Lehman Brothers to Robertson Stephens, now part of Bank of America Merrill Lynch.

But the Shin Kong deal is not the end of the story. Kir notes that a plan to launch a Ucits-compliant China long/short and special-situations fund in Europe is now under way. Targeting European institutional and retail investors, the fund will be domiciled in Dublin. It will be a variant from SWAM's existing Global China Alpha Fund, which is a long/flat absolute-return fund that invests in China-related securities worldwide.

The expected time of arrival for the fund is this coming summer. Kir reckons the European offering will showcase Mou's expertise in special-situations and distressed investments, which SWAM sees as an ongoing story in China.

Kir says European investors have already expressed interest and that the Ucits fund may attract about €150 million.

Shenyin Wanguo Securities is: 37% owned by CIC and its affiliate Central Huijin Investment; 12% owned by China Everbright; 9.65% by Shanghai Jiushi Company; 8.45% by Shanghai International Group (Shanghai city government's investment arm); and 5.67% Shanghai State Asset Management (the city government's separate arm responsible for state-owned assets).

SWAM is expected to receive a capital boost from the anticipated IPO of its parent, Shenyin Wanguo Securities, in Shanghai.