A Chinese investment firm backed by Julius Baer Group Ltd. and Navigator Global Investments Ltd. is seeking to buy stakes in domestic hedge fund managers, betting on the future expansion of the industry in the world’s second-largest economy.
(Bloomberg) — A Chinese investment firm backed by Julius Baer Group Ltd. and Navigator Global Investments Ltd. is seeking to buy stakes in domestic hedge fund managers, betting on the future expansion of the industry in the world’s second-largest economy.
GROW Investment Group plans to raise an initial $50 million as early as the fourth quarter, said William Ma, global chief investment officer of the Shanghai-based company. It’s in talks with domestic and international investors who are either seeking stable cash flows from such holdings or hoping to tap the growth prospects of Chinese hedge funds, he added.
The move resembles the business model of Dyal Capital Partners and Blackstone Inc., which have popularized deals in which investors provide strategic capital to help fledgling asset managers start or expand their businesses, in exchange for a share of fee revenue. Closer to home, HS Group and Ma’s one-time employer Penjing Asset Management have backed Asia hedge fund managers.
Owning such stakes is “like a call option on the China economy without taking too much downside risk,” Ma said in an interview.
Read about Julius Baer’s investment in GROW
GROW’s plan comes at a time when Chinese stocks have been roiled by geopolitical tensions, regulatory clampdowns and a slowing economy. Separately, tighter rules also threaten to shake up the nation’s hedge fund industry with 8,658 often small and loosely regulated firms as of April, according to statistics from the Asset Management Association of China.
GROW oversees around $700 million in assets and was incorporated two years ago, in the depths of the pandemic. It also employs Hong Hao, the former Bocom International Holdings Co. China strategist whose local social media accounts were suspended last year after he wrote some bearish reports on the country.
Foreign firms are tempted by the growth prospects for China’s asset management industry, even amid rising uncertainties. The country’s private pension market has the potential to swell to about $25 trillion by 2060, according to UBS Group AG, and BlackRock Inc. and Amundi SA are among global firms seeking a slice of the pie.
Chinese individuals diversifying wealth away from properties to alternative investments may further drive future expansion of the domestic asset management market, said Ma.
GROW’s proposed private equity-like fund will have separate yuan-denominated and dollar tranches, he added. The global investors GROW has sounded out tend to have a history of investing in similar funds, or are asset and wealth managers looking to learn about the Chinese market or scouting for local managers to outsource investments to.
The money raised will be used to buy stakes of as much as 51% in Chinese hedge fund managers. GROW is in discussions with nearly 10 potential targets, including quantitative market-neutral, convertible bond, arbitrage trading and commodity trading advisers. It is avoiding stock fund managers, which operate in a more crowded, cyclical space and often specialize in specific industries.
China is tightening rules on the once freewheeling industry of private funds that charge fees akin to hedge funds. Among other things, an April draft guideline put on AMAC’s website spells out a minimum net asset threshold that each fund has to maintain. Some state-owned holders are looking to dispose of stakes as asset management isn’t part of their core businesses, Ma said.
GROW also has a multistrategy fund that allocates part of its money to external managers, as well as a credit and real estate investment business.
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