23/06/2010 Author: Shannon Hawthorne

China’s wealthy drive hedge fund growth

Chinese high-net worth individuals (HNWIs) with estimated combined assets of more than $700bn are set to increase allocations into the hedge fund space as the country’s HNWI population continues to grow.

“The amount of capital these Chinese HNWIs are allocating to hedge funds will increase in the future as they continue to allocate their money to a range of asset classes,” confirmed Vicky Lai, vice-president, UK and China coverage at alternatives advisory and placement firm First Avenue Partners.

However, most of this investment activity is currently restricted to Hong Kong, primarily due to the region’s proximity to mainland China and special economic zone Shenzhen, says Lai, who helps European asset managers to access institutional investors and HNWIs in China as part of her role.

“At the moment, these high-net worth individuals are more comfortable investing in Hong Kong because not only is it closer to home, but they also understand the language and can readily access important resources, such as the local financial news and the stock exchanges,” she told HFMWeek.

“That is not to say they are not interested investing outside Hong Kong, but there is a lack of knowledge and lack of exposure to areas outside of those regions, such as Europe and US.”

According to the World Wealth Report 2009, produced by Merrill Lynch Wealth Management and consulting firm Capgemini, there are approximately 364,000 HNWIs in China – the fourth largest HNW population in the world.
The study defines a HNWI as those with investable assets of at least $1m; however, according to a HFMWeek source, Chinese HNWIs have around $2-3m each that they are able to invest.

Chinese HNWIs predominantly consist of real estate tycoons and entrepreneurs who have profited from listing their companies – typically in the Nasdaq, Hong Kong or Singapore exchanges – and exited their companies overseas.