Sagres Advisory is planning what it calls the first fund of hedge funds investing solely China-focused hedge funds. The China Century Fund will launch on April 1 with US$10 million in initial equity.
The new fund will initially allocate to eight equity long/short managers with trading operations in Hong Kong and research capabilities in Shanghai, according to a source familiar with the fund. The underlying managers will focus on listed mid-cap names, and its initial allocation is about 25% in A-shares (traded in Shanghai and Shenzen), 25% in B-shares (listed in Shanghai but denominated in U.S. dollars) and 50% in H-shares (traded in Hong Kong and denominated in Hong Kong dollars).
“Some of the managers have quota permissions, so they’re allowed to invest in A-shares,” the source said. “At the moment, the total quota for foreign investors is only US$10 billion compared to the total capitalization of the Chinese market, which is US$1 trillion so only 1% is in the hands of foreign investors. As far as I know this should be the first China-focused fund of funds.”
In addition, the China Fund will keep an exposure to Chinese currency. “A-shares are denominated in renminbi and the underlying funds don’t usually hedge their exposures because they don‘t believe there will be depreciation,” the source said. “It is widely known that renminbi is one of the most undervalued currencies in the world, and in fact, it is substantially pegged to the U.S. dollar.”
The China Century Fund charges a 1.5% management fee and 10% performance fee, with a US$100,000 or €100,000 minimum investment requirement.