Chinese hedge funds have seen less interest from investors due to a split between those who prefer Chinese stocks listed overseas, and investors looking for exposure to onshore-listed A-Shares, according to a Credit Suisse survey.
Even though numbers by Eurekahedge show hedge funds gaining 18% in 2013, compared to a 6-7% fall in mainland Chinese stocks overall, the net inflow to hedge funds dropped from 24% from last year, to 18% in 2014.
Inflows to Japanese hedge funds, however, have risen sharply during the past few years as 33% of investors say that they will be increasing their exposure to hedge funds in 2014, compared to 7% and 16% in 2012 and 2013 respectively. This number is topped only by Western Europe, where 43% responded that they are seeking to allocate more of their capital to hedge funds.
The surge of interest in Japanese hedge funds is explained by their performance last year, which were among the best in the world. But, the outflow in their Chinese counterparts is somewhat more complicated.
Large-Cap Chinese Stocks listed offshore, such as Baidu and Home Inns on the NASDAQ exchange, are usually preferred for their higher market capitalization and liquidity, along with their better performance overall.
Meanwhile, those who prefer to invest in stocks listed on the Shanghai and Shenzhen exchanges are unable to do so through hedge funds as these entities, often domiciled in offshore jurisdictions such as the British Virgin Islands, are unable to obtain the qualifications needed to invest in China as a foreign entity.
The desire for hedge funds in the Asia Pacific region as a whole also appears weak, as demand fell from 35% to 25%.
But the sentiment toward hedge funds worldwide appears generally positive. An international group consisting of banks, advisors, funds of funds, pension holders, and insurance companies, who together hold over US$1.1 trillion of hedge funds were optimistic compared to last year, as 26% planned on increasing their exposure compared to 22% in 2013.