The SFC-approved Foundation China Equity Fund, a hedge fund using an absolute return strategy, formally launched on Monday.
It invests in the Greater China markets, including Taiwan, Hong Kong and onshore China and is sold through two Chinese banks, which the firm declined to name.
The product is based on the firm’s Greater China hedge fund.
“We wanted a retail version of our China hedge fund because we believe that there is not that many Greater China absolute return products in the retail market right now,” Sam Ho, portfolio manager at Foundation AM, told FSA.
The fund, which is the firm’s first Securities and Futures Commission (SFC)-approved product, received approval in September to be sold in Hong Kong’s retail market.
Hedge funds fell out of favour with investors after 2008 due to high fees, lack of transparency and generally poor performance.
In fact, out of roughly 1700 retail funds in Hong Kong, only two hedge funds are SFC-registered, the Janus Henderson Horizon Pan European Alpha Fund and the Man AHL Diversified Futures Fund, according to FE. (Singapore has 19 hedge funds out of 1276 retail funds).
Foundation AM, however, hopes to eventually participate in the Hong Kong-China Mutual Recognition of Funds (MRF) scheme. Ho said the fund was therefore domiciled in Hong Kong, which is one requirement for MRF participation.
“We want to make this retail fund part of the MRF scheme, but that will be a later step,” he said, without giving a timeline.
A concentrated fund
The retail product will replicate the firm’s existing Foundation China Opportunity Fund, which is a long/short equity fund that first launched in 2007 to professional investors. Like the existing Opportunity fund, the retail product will target an average return of 10%-15% per annum, according to Ho.
It it is managed by Michael Liang, founder and chief investment officer, and his team.
The portfolio is concentrated, with only 25 names, and the managers use “dynamic hedging” to minimise downside risk and make the product less volatile than the market, according to Ho.
“We are trying to protect the portfolio through dynamic hedging,” he said, adding that the product makes use of quant models to support the hedging process.
“The only difference is that the Opportunity Fund [which is available only to professional investors] can short-sell individual stocks, while the retail version will be using index futures for hedging,” he said.
In terms of fees, the retail product will have a management fee of 1.15% and a 15% performance fee, according to Ho. The current fees are lower than the average hedge fund fees of around 1.7% and 17%.
Other fund launches
Foundation Asset Management has another product, The Foundation USD Assets Income + Growth Fund, which is a balanced mixed-asset US-focused hedge fund, which is only available to professional investors.
Ho said if the hedge fund gathers enough assets in Hong Kong’s retail market, the balanced fund would also be registered for retail sale.
Founded in 2006, the firm manages $1.1bn in client assets, which includes its sub-advisory business, according to Ho. Its funds business has assets of around $250m, with the majority of the clients coming from Hong Kong and some in Europe, he added.