OPENING THE DOORS FOR HEDGE FUND INVESTMENT IN CHINA
The world's largest, most prominent hedge funds joined Chinese government officials in Tianjin, China for a two-day discussion about the role of hedge funds in China's rapidly growing financial services sector.
In June 2008, leading members of the Chinese and Asian fi nancial communities joined representatives from eight of the world’s top hedge funds in a unique educational forum, "Global Markets and the Role of Alternative Investments."
"This conference resulted from a CME Group-led effort," says Marc Charon, executive vice president of the Managed Funds Association (MFA). "Opening doors was a conference goal, which provided attendees with a really good introduction to hedge funds and the role alternative investments can play in a prudent investment program." The conference was conceived in October 2007. Tina Lemieux, CME Group managing director, hedge funds and broker services, and executives from two hedge funds traveled to China to gain a better understanding of the country's fi nancial markets. They met with senior government officials to provide an overview of hedge funds and the investment opportunities that they offer. The Chinese officials were intrigued and the conference idea was born. Planning the meeting was a collaborative effort among CME Group, the Tianjin Municipal People's Government, China Foreign Exchange Administration Magazine and the MFA.
TAPPING EMERGING GROWTH POTENTIAL
Why hold such a conference in China? "China is both an emerging market in which to invest and a largely untapped resource for gathering assets," Charon explains. China's sovereign wealth fund, China Investment Corporation (CIC), provides a hint of the country's investment potential. CIC manages $200 billion of China's $1.2 trillion of reserve assets, says Lemieux.
"The Chinese know very little about hedge funds and alternative investments. CME Group saw an opportunity to serve as a facilitator in helping key people develop an understanding of these investments," Lemieux says, suggesting that strong interest on both sides was proven by the number and caliber of the conference attendees - and the prestige of the hedge funds represented.
The conference explained what hedge funds are and how they can diversify an investment portfolio. Speakers emphasized risk management controls and the efforts of both the industry and regulators to develop sound practices. The keynote speaker was Gao Xiqing, CIC president and vice chairman. About 175 senior-level investment professionals and market regulators attended the invitation-only conference, most from China and other parts of Asia.
Highlighting the enormous potential of the Chinese market, eight leading hedge funds participated in the conference:
Citadel Investment Group, LLC
Fairfield Greenwich Group
Harbinger Capital Partners Funds
Moore Capital Management, LLC
Paulson & Co., Inc.
S.A.C. Capital Advisors, LLC
D.E. Shaw & Company, LP
Tudor Investment Corporation
DEMYTHICIZING HEDGE FUNDS
"Lots of myths have sprung up concerning hedge funds," Charon says. "The news media cling to the idea these investment vehicles fl y beneath the regulatory radar."
To dispel those myths, panelists spoke about best-practice standards for alternative investments, such as disclosure recommendations, established by the MFA and the U.S. President's Working Group on Financial Markets. This working group includes representatives from the U.S. Department of Treasury, Federal Reserve Board of Governors, Securities and Exchange Commission and Commodity Futures Trading Commission.
The MFA and its members have played leadership roles in the process of developing best practice recommendations.
"The MFA effort to develop sound practices began in 1999," Charon says. "The President’s Working Group initiated its efforts in 2007, and several MFA sustaining members have served on its committees."The working group seeks to guard against systemic risk in the financial markets, protect investors, and assert the shared responsibility of market participants to ensure the vitality, stability and integrity of the capital markets. As Charon wryly puts it, simply noting these principles does much to "dispel the myth of hedge funds as gunslingers of the financial Wild West."
BENEFITS ACCRUE FOR ALL
The CME Group-MFA collaboration on this conference makes sense for several reasons. CME Group is an MFA strategic partner and a member of the association, but it goes deeper.
"The MFA wants to globalize and its members are some of the exchange's best customers," Lemieux says. "So it only makes sense for the exchange to help bring the two sides together."
Charon reinforces this. "The MFA members want to learn more about the CIC and its governance," he says. "Obviously, Chinese investment professionals want to learn more about what our members do and how they do it."Bottom line? "The global perception of hedge funds has not been good," Lemieux says. "But, because of the quality [of its] participants, this conference did much to change the way the Chinese and Asian attendees look at hedge funds. That has to benefi t both the hedge funds and CME Group.
Back to Summer 2008 Issue Home
Download a full PDF version of this issue here.
