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Tricor China and Tsinghua University PBC School of Finance (Tsinghua PBCSF) jointly released China Hedge Fund Report 2022, which presents interpretations of how hedge fund investment strategies in the Chinese capital market are evolving, especially in terms of market share, performance, and compliance with applicable rules and regulations. Based on careful analysis of market practices, we hope to provide suggestions to foreign investors looking to establish and operate hedge funds in China.

Introduction
After three stunning decades characterized by rapid economic development and continuous financial opening up, China has emerged as the world’s second-largest capital market. It also serves as one of the most important destinations for capital allocation for investors around the globe. To facilitate foreign investors’ participation in its capital market, China introduced programs and mechanisms such as Qualified Foreign Institutional Investors (QFII), RMB Qualified Foreign Institutional Investors (RQFII), and SH/SZ-HK Stock Connect. But with the Chinese government’s recent and ongoing efforts to open the country’s capital market, more foreign investors can now directly establish asset managers in China for asset allocation purposes.

Furthermore, with booming domestic demand for wealth management and rising market volatility, China is striving to create more opportunities for hedge funds. As interest in Chinese hedge funds continues to rise, the sector is poised to make new headways. At the same time, a boom in ESG (environmental, social, and corporate governance) investment abroad and China’s 2030/60 carbon reduction and neutrality goals has pushed hedge funds to take ESG factors into account when implementing investment strategies.

Despite the rising popularity of hedge funds in China, foreign investors still face headwinds on multiple fronts – constantly evolving compliance requirements and fierce local competition in particular pose significant challenges. Moreover, hedge funds’ business operations can be inherently complicated, due to the multitude of factors that must be considered at the initial stage of establishment.

Catch up on the key points:

Part 1: Overview of Private Funds in China

• Along with China’s rapid economic development and growing demand for wealth management, Chinese households’ asset allocation to financial instruments has been on the rise.
• The private fund sector in China has experienced rapid development in recent years. By Q3 2021, 110,000 private funds were registered with the Asset Management Association of China (AMAC), with a total asset under management (AUM) of RMB 19.65tn.
• ESG and responsible investment are still in the early stages of development. Despite ESG's limited scale, this highly promising sector is picking up pace.

Part 2: Foreign Private Funds in China

• China’s private fund market has seen profound development in recent years, with an ongoing rise in the presence and enthusiasm of foreign investors. By the end of 2021, China had a total of 355 foreign private fund managers, of which 57 were foreign hedge fund managers.
• The proportion of foreign capital has maintained remarkable growth in recent years, particularly in the Industrial and Information Technology (IT) sectors.
• Chinese regulators have introduced detailed requirements for foreign investors to set up private fund management companies in China.

Part 3: Operational Practice of Foreign Private Funds in China

• Private fund business operations can be inherently complicated, due to the multitude of factors that must be considered at the initial stage of establishment. These include organizational form, site selection, registered capital, management structure, and taxation.
• The rapid growth of private funds will be accompanied by further tightening of regulations and higher information disclosure requirements.

Conclusions
Despite the challenges, China has created a positive investment environment and attractive opportunities for private funds. As market volatility increases due to rapid economic development and the pandemic, foreign private funds are picking up pace, and now is the right time for foreign investors to enter China.

Download the report and connect with Tricor China’s Head of Business Development, Christine Wang, to learn how Tricor helps foreign private fund managers navigate the Chinese market.

About Tricor China and its Fund Services
Tricor is Asia’s leading business expansion specialist, with global knowledge and cross-regional experience in corporate service and compliance management. Strategically headquartered in Hong Kong – SAR, China, the Group today has 50,000 clients globally (including 20,000 clients in Mainland China), a staff strength of 3,000, and a network of offices in 49 cities across 22 countries/territories. Tricor entered Mainland China in 2001, with 500 professionals and across a network of 13 offices.

Tricor is one of the earliest professional firms serving domestic and foreign private fund managers. Tricor’s fund services cover the entire life cycle of alternative investment business. In Mainland China, Tricor provides services to more than 80 private fund managers – covering fund establishment, investment, operation, and exit. Tricor has rich and comprehensive experience in managing the middle- and back-office functions of private fund operations. Empowered by Tricor’s digital transformation and outsourcing solutions, private fund managers can focus on their core business and strategic initiatives to accelerate growth.

For more information, please visit:
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