Malkiel’s AlphaShares Spins Off China Funds as Baochuan Capital

AlphaShares LLC, the index creator and fund manager that invests in Chinese stocks co-founded by Princeton University economist Burton Malkiel, sold its investment unit to the company’s executives.

Baochuan Capital Management LLC will oversee hedge funds that invest in the world’s most populous nation, while AlphaShares will continue creating and licensing indexes for exchange-traded funds, according to Kevin Carter, a co-founder AlphaShares who will be Baochuan’s CEO. Malkiel will be Baochuan’s chief investment officer and chairman of the AlphaShares Index Committee. The firms, which together manage $600 million and are both based in Walnut Creek, California, didn’t disclose terms.

“The separation lets AlphaShares focus on developing better China indices, primarily for ETFs, while letting BaoCap focus on active investment strategies for institutional investors,” Carter, 41, who co-founded the firm with Malkiel in 2007, said.

Investors are pouring cash into funds buying Asian stocks. They held $344.5 billion in Chinese assets as of the end of the third quarter, up 12 percent from a year earlier, according to the Washington-based Investment Company Institute. U.S. total net assets grew by 4 percent over the same period to $11.27 trillion, while Europe’s expanded by 4.2 percent to $7.78 trillion.

Other Hires

Baochuan hired three others from AlphaShares. Mark Adams will be director of research, Jonathan Masse will become senior portfolio manager and Mark Wehrman will be director of business development, according to a statement from Baochuan.

AlphaShares last year introduced an index similar to the Chicago Board Options Exchange Volatility Index, or VIX, that uses options prices to track stock market volatility in China and Hong Kong. The AlphaShares Chinese Volatility Index, tracks the implied volatility of options on the Hang Seng Index (HSI), Hong Kong’s equity benchmark, and the FTSE/Xinhua China 25 Index of China’s 25 largest companies by market value.

Malkiel forecast in January 2008 that Chinese stocks were poised to plunge, saying in an interview that the “bubble” would burst once the government allowed funds to flow more freely. The Shanghai Composite Index, which tracks the bigger of China’s bourses, tumbled 65 percent that year.

The Shanghai Composite Index, representing the larger of China’s two major exchanges, has gained 4 percent this year on optimism the world’s second-biggest economy will withstand tighter monetary policies. Manufacturing is expanding even as the government raises interest rates and orders banks to set aside more reserves to slow inflation that is exceeding government targets.

Baochuan takes its name from the 400-foot-long ships in a 15th century Chinese naval armada commanded by admiral Zheng He, who sailed to Southeast Asia, India, Arabia and East Africa more than a half century before Christopher Columbus reached to the Americas.

To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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