E Fund Management Co., China’s second-largest mutual fund house, plans to start two emerging- markets funds early next year through its Hong Kong unit, rivaling international peers such as Fidelity International.
E Fund Management (HK) Co. plans to raise a combined $200 million to $500 million for a long-short global emerging markets hedge fund and a long-only fund in their first three to six months, said Charles Wang, the unit’s chief executive officer. It hopes to grow them to as much as $5 billion in five years.
Emboldened by profitable domestic businesses, Chinese money managers are tapping into rising demand for emerging markets funds and taking advantage of China’s position as the largest developing country, said Peter Alexander, principal at Shanghai- based fund research company Z-Ben Advisors Ltd.
“Chinese asset managers are beginning to spread their considerably funded wings,” said Alexander. “What Chinese asset managers are saying is, ‘why would you go to some foreign asset manager to get your China exposure or your emerging markets exposure when you can go to company that knows emerging markets better?’”
Wang, 43, who in July became CEO of the Hong Kong unit of the Guangzhou-based fund house with more than 200 billion yuan ($30 billion) of assets, will co-manage the emerging markets funds with Fei Peng, 37, who joined on Nov. 7.
Wang was most recently director of research and senior portfolio manager at Acadian Asset Management LLC, helping run $12 billion emerging markets investments for the Boston-based fund house, he said. Fei was previously with State Street Global Advisors Inc. in Boston from 2004, rising to head of North American active equities research before his departure, he said.
“We combine the China insights with global experiences,” said Wang in an interview in Hong Kong yesterday. “We’re here in Hong Kong, we’re competing with the Goldman Sachs, Fidelities and Blackstones.”
E Fund is planning the two emerging markets funds as investor appetite for such investments has returned, yet allocations to these countries are still too low compared to their weight in benchmark indexes and the countries’ faster economic growth, said Wang.
“People used to say emerging markets were risky, developed markets are safe,” said Wang. “Now they realized it’s not necessarily the case. Developed markets have a lot of challenges. Emerging markets have a lot of opportunities, including fundamentals.”
Investors added $74.5 billion to emerging-market equity funds this year, approaching last year’s record of $83.3 billion, Cambridge, Massachusetts-based research firm EPFR Global said in a Nov. 5 statement. MSCI Emerging Markets Index gained 16 percent this year, more than doubling the increase in the MSCI World Index.
E Fund is also starting emerging markets funds in Hong Kong as local managers tend to oversee China or Asia-focused funds, with a shortage of talent experienced in running global emerging markets investments, Wang said.
Acadian Emerging Markets Portfolio returned 13 percent annually in the 10 years to December 2009, beating the 11 percent gain of the S&P/IFC Emerging Markets Regional Investable Composite Index, according to data compiled by Bloomberg. Wang co-managed the fund between 2002 until he left to join E Fund.
The two funds will screen stocks through research of company’s fundamentals and quantitative analyses of price trends and financial information, he added. They may allocate more money to China stocks because of E Fund’s research ability and understanding of them, said Wang.
Hong Kong Bridgehead
They will be marketed mainly to international institutions, as well as wealthy individuals, Chinese companies with assets in Hong Kong, and seek to raise yuan assets from Chinese investors for the funds, Wang said.
The long-only fund will seek to beat the S&P/IFC Emerging Markets Regional Investible Composite Index by 4 percent to 6 percent a year. The hedge fund targets a 15 percent annual return after fees.
E Fund set up its Hong Kong office in 2008 as its bridgehead for international expansion. The unit is responsible for overseeing its parent’s international investments and raising capital from overseas investors for investments in China or overseas.
Last year, it started a Bright China Opportunity Fund Ltd., a long-short pool that invests in China stocks listed in Hong Kong and other international exchanges such as the U.S. and Singapore, said Wang. The nearly $30 million fund, managed by Nathan Lin and Frank Zhu, returned 18 percent after fees last year and 6 percent in the first 10 months this year.
It also plans to start a long-only China fund, which will primarily buy yuan shares listed in China and Hong Kong-quoted Chinese stocks, Wang said.
Zhu was formerly employed by AllianceBernstein LP in the U.S., Wang said. Other members of the six-member investment professionals of the Hong Kong unit include Joseph Zhang, who worked for Pacific Investment Management Co., and Guangzhou-based Joana Gratale.