China National Pension Fund Senior Adviser Plans Hedge Fund in September

Date: Monday, May 31, 2010
Author: Bloomberg

A senior adviser to China’s $130 billion state pension pool and a former Asia prime brokerage head at Morgan Stanley are teaming up to start a China-focused hedge fund in September.

Hong Kong-based JT Capital Management Ltd. is aiming to raise $100 million for the fund, said Chief Investment Officer Larry Zhang, who has advised the National Social Security Fund on its global investments for the last two years. The fund will trade Chinese stocks listed domestically or on an international exchange such as Hong Kong or the U.S., he said.

Chinese hedge-fund managers have struggled to raise money from international institutions which are increasingly concerned about transparency and risk control. Singapore-based hedge-fund consultant GFIA Pte stopped covering most China-based funds whose principals didn’t work at international companies, principal Peter Douglas said in February.

“We are building an institutional quality investment platform with local information access, and it offers a high- level of transparency,” said Zhang, 47, in a telephone interview on May 28.

Zhang will be JT Capital’s co-chief executive officer with Kurt Baker, who headed Morgan Stanley’s prime brokerage unit in Asia before leaving in November 2008. Zhang will oversee investments at JT Capital and Baker will be in charge of operations, the former said.

Experience

Zhang was a partner of London-based hedge-fund manager GSA Capital Partners LLP, running its global equity market-neutral investments, before returning to China two years ago. Market- neutral funds seek to profit without taking a view on general market directions.

Before GSA, Zhang managed the long-short stock investments in Asia outside of Japan for Barclays Global Investors in San Francisco.

Zhang’s experience as a fund manager and Baker’s stint as head of one of the largest prime brokers in Asia may help their new venture raise capital, said Will Tan, Singapore-based managing director at hedge-fund recruitment firm Principle Partners Pte.

“Almost all startups are having an extremely tough time raising capital,” said Tan. “Institutional investors globally seem to prefer the tried and tested hedge funds and most capital has gone the way of established funds with over $1 billion in assets under management.”

Only 29 percent of global investors invest in funds in their first 90 days of life, according to a Morgan Stanley survey released in April.

‘Investment Discipline’

JT Capital, which will maintain a research office in Beijing, will use research of macro-economic cycles, government policies and bottom-up fundamental analyses to pick stocks, Zhang said. These will be supplemented by computer-generated trading signals, he added.

“The systematic risk control approach will introduce investment discipline into our fundamental-focused stock-picking approach,” said Zhang in the interview.

The fund will short-sell single stocks listed internationally. Short-selling involves selling borrowed stocks in expectation of buying them back when their prices fall. The fund’s difference between long and short investments will be about 30 percent, lower than the typical China fund, Zhang added.

The Eurekahedge Greater China Long/Short Equities Hedge Fund Index lost 0.95 percent this year through April after gaining 48 percent last year, according to Singapore-based data provider Eurekahedge Pte. It underperformed the Eurekahedge Asia Long/Short Equities Hedge Fund Index, which climbed 2.6 percent in the first four months of the year.

The Shanghai Composite Index has lost 19 percent this year.

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.