GFIA Shuns Chinese Hedge-Fund Coverage for Lack of Transparency

Date: Tuesday, February 2, 2010
Author: Tomoko Yamazaki, Bloomberg

GFIA Pte, a Singapore-based hedge- fund firm and consultant, said it stopped coverage of most Chinese hedge funds because they lack transparency and sold all of its investments with mainland Chinese managers.

The value of GFIA’s China-dedicated funds peaked at about $3 million, 10 percent of its portfolio, Peter Douglas, GFIA’s principal, said in a telephone interview. Douglas shifted coverage to Hong Kong-based managers with experience in the financial industry outside of Asia, from those in mainland China, he said.

“A hedge fund is really all about the people behind it, and less about where the firm is, the structure, and all the rest of it,” Douglas said. “The problem is there is no deep culture of openness and transparency in China. If you’re running a more qualitative risk-management approach, you really need a breadth of qualitative information.”

GFIA’s decision to stop covering managers in the country comes as Chinese hedge funds benefit from a market recovery spurred by economic growth. Returns at Greenwoods Asset Management Ltd.’s Golden China Fund almost tripled last year placing it among the best-performing, China-dedicated funds, according to GFIA’s monthly report, published yesterday. GIFA has been researching China hedge funds since 2004.

Latin America, India

“Our thesis, and this is speculation, is that there is no internalized culture of business or fiduciary ethic in the People’s Republic of China,” GFIA said in the report. “For the time being, we doubt this will change.”

GFIA favors managers in India and Latin America that tend to have stronger governance and transparency, Douglas said, citing Brazilian hedge funds, which have daily dealings and full portfolio transparency mandated by regulators, and India’s almost two centuries of corporate governance.

Separately, Douglas said GFIA started a wealth management business last month to tap investment demand from affluent individuals in Asia. The private banking business will provide financial stability for GFIA’s consulting and discretionary businesses and help it return to a profit, he said without disclosing financial terms.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net