China’s burgeoning hedge fund industry is gaining ground, with this year being the first time two managers from the country have made the top five in the Asia 25 Hedge Fund 2013 ranking.
But despite recent moves to attract foreign hedge funds to the mainland, the industry remains beset with complex regulation and salaries that don’t compete with those offered in Hong Kong and other parts of Asia-Pacific.
One Singapore-based hedge fund chief investment officer (CIO), who chose to remain anonymous, says hedging can be quite challenging in China, as the country does not currently allow single stock short-selling and only very basic derivative products are available.
“Assets under management at the better known funds in China are typically sourced from Hong Kong, the US and Europe. In comparison, there is a much larger domestic investor base for hedge funds in Singapore and Hong Kong.”
Richie Holliday, chief operating officer, Asia Pacific, Morgan McKinley, says that China’s hedge fund market is not only immature relative to the rest of the financial services industry, but it is also hampered by the tightly controlled exchange rates, strict investment license processes, and rigid restrictions on products – all of which make working for a mainland hedge fund more challenging than a Hong Kong fund.
Nonetheless, there are numerous domestic hedge funds operating in China – the exact number is difficult to ascertain – and judging by the strong performance versus the benchmark index in 2012 and in the year-to-date 2013, the Singapore hedge fund CIO expects continued high growth across the industry.
This is supported by the recent announcement by the Chinese authorities to permit six global hedge funds – Citadel, Man Group, Oaktree, Och-Ziff, Winton Capital and Canyon Partners – to raise up to USD$50 million each in China, marking the first time any foreign hedge fund has been granted this leeway.
This is encouraging recruiters to believe that there will be some expansion of the industry as it seeks out untapped funds, and this will ultimate have a knock-on effect on hiring.
For now, however, the main activity is focused on senior management roles for people with strong language skills and at least a decade of solid experience.
Holliday says preferred candidates are Chinese nationals who can prove their connections to policy makers and significant clients, such as sovereign or institutional funds or high net-worth individuals.
“There are some more junior analyst-level roles available from time to time, but that even these roles require at least one year existing experience working with global investment firms. Native Chinese language skills are also a prerequisite for those looking to work in China’s hedge fund industry.”
And the work is not easy. As we previously reported, Amanda Lote, managing director and founder of search firm Lote and Partners, says she has a hedge fund client in China where a 100-hour work week is normal. “Hedge funds are notorious for the long hours worked by junior analysts.”
Hedge fund salaries are highly competitive within China, especially on bonuses and performance incentives, says Holliday. At the senior level, counter-offers are common when staff resign, since organisations know that such skills and connections are not easily replaceable.
Despite the skills shortage in China for hedge funds, managers in Hong Kong still earn more, with analysts there typically earn 30-40% more than those working in a local China-based hedge fund and approximately 15-20% more than those in an international global fund.