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UBS AM debuts fund of hedge funds in China

The product adds to the firm's other onshore products launched via its private fund management licence.

The UBS (CN) A&Q China Diversified Fund of Funds is the first ;fund of private securities funds in China, according to a statement from the firm. The product has been submitted for filling with the Asset Management Association of China (Amac).

The fee question

The fund of funds (FOF) “aims to achieve long-term capital appreciation while maintaining both moderate beta to the China A-share market and moderate volatility over an economic cycle”, the statement said.

However, fund of funds commonly carry layers of fees, which are charged by each of the underlying funds. Moreover, hedge funds have typically used a controversial fee structure — a 2% management fee plus 20% of profit when the fund is above a certain threshold (“2 and 20”).

The firm did not disclose the FOF’s charges.

FSA sought more information from UBS AM, but it was not able to comment in time for publication.

Xia Kun, from UBS AM’s Shanghai affiliate, will manage the fund. Xia has 15 years’ capital markets experience, including 5 years managing products onshore, the statement noted.

According to Adolfo Oliete, head of APAC investments for HFS: “The private securities fund industry in China is developing rapidly, so it may take time for onshore investors to develop operational risk awareness and for the industry to align itself to the global standards in terms of investor protection. Nonetheless, we hope to realise the full potential of the FOF product model in China.”

UBS AM holds both a private fund management (PFM) license and a Qualified Domestic Limited Partner (QDLP) scheme quota in China. It released its first onshore private equity fund designed for Chinese investors in 2017, the statement said.

The PFM licence allows foreign fund managers to invest in a portfolio of onshore assets and permits the product’s sale to a maximum of 200 domestic qualified investors, while the QDLP licence allows foreign managers to raise money domestically to invest in offshore traditional and alternative investments, including overseas equity and bond funds, hedge funds and real estate, within allocated quotas.

In addition to the FOF, the firm is selling four onshore products under the PFM licence, one equity fund and three focused on fixed income.

Part of the Mark Allen Group.