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Hong Kong hedge fund launches third retail product

Foundation AM's China high yield strategy aims to provide an annual income target of 8.5%.
The busy streets of HongKong

Foundation Asset Management has received a greenlight from the Securities and Futures Commission to launch the Foundation China High Yield Income Fund, according to the regulator’s records.

The firm expects to roll out the product at the end of May or early in June, a Hong Kong-based Foundation AM spokeswoman told FSA. The fund’s main distributors including China Securities (International), Essence International Securities in Hong Kong and CCB International Securities.

This is the third retail product that the Hong Kong-based firm will be managing. Founded in 2006, the firm started managing strategies on behalf of professional investors.

However, at the end of 2018, it entered Hong Kong’s retail fund market when it received approval from the SFC to launch the China Equity Fund, which replicates the firm’s long/short equity strategy launched in 2007. In March, Foundation AM rolled out a second public fund, the Global Income and Growth Fund, which is a mixed-asset product.

As of the end of April, the China Equity Fund had HK$216m ($27.8m), while the Global Income and Growth Fund had $12m, according to the spokeswoman. In total, the firm manages $1.1bn in assets.

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.

For now, the firm does not have any plans of launching another retail product this year, the spokeswoman said.

Separately, another hedge fund firm has also started to target retail investors in Hong Kong. In 2018, Pickers Capital launched a long-only China Equity Fund targeting retail investors in the SAR.

The strategy

The China High Yield Income Fund will be managed by Yanming Guo, the firm’s deputy chief investment officer, who joined Foundation AM in 2018, according to the spokeswoman. Previously, she was deputy CEO and head of fixed income at CSOP Asset Management.

The fund will invest in US dollar-denominated high yield bonds issued by Chinese companies. Compared with onshore renminbi-denominated bonds, the firm believes that offshore Chinese bonds provide a hedge against currency risks.

“Onshore bonds are subject to currency risk. The yields of the offshore US dollar bonds is also much higher than RMB-denominated bonds,” the spokeswoman said.

The product also aims to provide an annual income target of 8.5%, to be distributed monthly.

“The fund can provide attractive income for investors in a global low or negative interest rate environment.”

In terms of risks, the fund manager will closely look at liquidity and default risks, the spokeswoman said, noting that the bonds must have a credit rating by at least one of the rating agencies, including Moody’s, Fitch Ratings and S&P Global.

Part of the Mark Allen Group.