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Hedge fund targets Hong Kong’s public investors

Foundation Asset Management now has one of only five SFC-approved hedge funds for sale to retail investors and the firm aims to roll out a China-focused high yield product.
Hong Kong, China - March 27, 2016: A Hong Kong tram squeezes past shoppers and stalls at the Chun Yueng Street Market in North Point, Hong Kong

The firm has received a greenlight from the Securities and Futures Commission to launch the Foundation Global Income and Growth Fund to retail investors in Hong Kong, according to the regulator’s records.

The fund is now accepting subscriptions for its initial public offering, which will end in February, according to the firm’s website.

The product is a flexible mixed-asset fund, in which allocation to equities and bonds can go up to 70% each, according to a Hong Kong-based spokesman of the firm. Allocation of assets may vary substantially depending on the managers’ assessment of economic conditions, but the spokesman was not able to provide details about the fund’s initial asset allocation.

The fund also has some investment restrictions. For example, the manager will not invest in emerging market equities and non-US dollar exposure is limited to 30% of the fund’s assets, according to the document provided by the spokesman.

Although available to retail investors, the product maintains hedge fund-like features. For example, it may invest up to 50% of its assets in financial derivative instruments for hedging purposes.

The investment objective is to provide income and capital appreciation to investors. The strategy aims for up to 6.8% dividend payouts per annum with comparatively low volatility, according to the spokesman.

In terms of fees, the retail product will have a management fee of 1.5% with no performance fee, according to its product key facts statement. As of the end of June, the average hedge fund management fee in Asia was 1.44%, while the average performance fee was around 16.67%, according to data from Eurekahedge.

There are only four other hedge funds in Hong Kong that are available to retail investors, which are managed by Man Investments, Janus Henderson, Wells Fargo and Ariana, according to data from FE Fundinfo.

A third fund

In late 2018, Foundation received approval from the SFC to launch its first retail fund, the China Equity Fund.

The product, which can invest up to 20% of its assets in A-shares and B-shares listed in China, is a hedge fund with an absolute return strategy. It replicates the firm’s Foundation China Opportunity Strategy, which is a long/short equity fund that first launched in 2007 to professional investors.

The Foundation China Equity Fund since inception

Source: Fund factsheet. The fund incepted in July last year and uses the Hang Seng as its benchmark. Note: FE Fundinfo does not have any data about Foundation Asset Management and its funds.

The China Equity Fund now has around $25m in assets, according to the spokesman.

The firm also plans to launch a third retail fund during the first quarter, which is an income fund that invests high-yielding Chinese bonds, according to the spokesman.

The firm hopes to eventually participate in the Hong Kong-China Mutual Recognition of Funds, given that its retail funds are domiciled in Hong Kong, Sam Ho, portfolio manager at Foundation AM, told FSA previously.

As of the end of December, the firm managed around $1.1bn, which includes assets in its sub-advisory business, according to the spokesman.

Part of the Mark Allen Group.