US hedge fund raises money from wealthy Chi­nese to in­vest abroad

China Daily (Canada) - - ACROSSAMERICA - By MICHAEL BAR­RIS in New York

michael­bar­ris@ chi­nadai­lyusa.com

In a mile­stone for the global hedge fund in­dus­try, US-based Ci­tadel LLC has be­come the first global fund to raise money from wealthy Chi­nese in­di­vid­u­als for in­vest­ment abroad.

Chicago-based Ci­tadel was one of six for­eign hedge funds ap­proved in Septem­ber by China’s for­eign-ex­change reg­u­la­tor to each raise $50 mil­lion in yuan un­der the trial Qual­i­fied Do­mes­tic Limited Part­ner (QDLP) Pro­gram that al­lows high net worth Chi­nese to in­vest abroad via for­eign hedge funds.

The com­pany founded by bil­lion­aire Ken Grif­fin won reg­u­la­tory ap­proval for cur­rency ex­change on March 26, mean­ing it can now con­vert the yuan to US dol­lars for in­vest­ing, ac­cord­ing to a state­ment Wed­nes­day from the Shang­hai govern­ment’s in­for­ma­tion of­fice.

Michael Geller, a Ci­tadel spokesman with the New York­based Edel­man pub­lic re­la­tions firm, said the hedge fund de­clined to com­ment.

When the Chi­nese govern­ment an­nounced the QDLP pro­gram in March 2012, the idea was that it could lead to the open­ing of huge pools of Chi­nese cap­i­tal to for­eign hedge funds. It also was seen as al­low­ing qual­i­fied over­seas hedge funds to raise yuan-de­nom­i­nated funds in the Chi­nese main­land and ex­change the cap­i­tal to make over­seas in­vest­ments. The pro­gram also was pro­moted as an op­por­tu­nity for for­eign hedge funds to build a brand and a pres­ence in a rapidly grow­ing do­mes­tic cap­i­tal base.

In­ter­na­tional as­set man­agers have long eyed the fundrais­ing po­ten­tial of China which had 108.5 tril­lion yuan ($17 tril­lion) of lo­cal-cur­rency de­posits at the end of April, ac­cord­ing to data from the People’s Bank of China.

Lau­rie Pinto, CEO of Bei­jing­based ad­vi­sory firm NSBO, has called the QDLP pro­gram “po­ten­tially a to­tal game-changer for the way money is man­aged in the Western world.

“China is one of the last great pock­ets of cap­i­tal,” Pinto said. “As a mid­dle class emerges, people are sav­ing money.”

But fundrais­ing by the first batch of ap­proved hedge funds has been plod­ding. The hedge funds can only tap high net worth Chi­nese in­di­vid­u­als, and not Chi­nese in­sti­tu­tional in­vestors, in­clud­ing in­sur­ers, un­der the pro­gram. The no­tion of Chi­nese in­vestors pay­ing high fees for for­eign firms to man­age their money is strug­gling to win ac­cep­tance in the Asian na­tion.

“Some man­agers see the pro­gram as unattrac­tive and some­what time and cost in­ef­fi­cient given the re­sources they need to com­mit to QDLP,” said Hu­bert Tse, Shang­hai-based part­ner at law firm Boss & Young, who ad­vises hedge-fund man­agers based on the main­land. They see that “the quota that was awarded to the first batch was rather small,” he was quoted by the Wall Street Jour­nal.

The next batch could in­clude real es­tate-fo­cused in­vest­ment man­agers, pri­vate-eq­uity firms and funds of hedge funds, Tse was quoted. Other firms un­der the QDLP so far are Oak­tree Cap­i­tal Man­age­ment, Och-Ziff Cap­i­tal Man­age­ment Group, Win­ton Cap­i­tal Man­age­ment, Man Group, and Canyan Part­ners. “For­eign al­ter­na­tive man­agers have gen­er­ally strug­gled with de­sign­ing in­vest­ment strate­gies that ap­peal to qual­i­fied Chi­nese buy­ers,” said Daniel Celeghin, Asia head of Casey Quirk & As­so­ciates LLC, a Darien, Con­necti­cut-based ad­viser to as­set man­agers. “If Ci­tadel, a global brand-name hedge fund, is suc­cess­ful, this will be a highly vis­i­ble sign of QDLP’s vis­i­bil­ity.”

Ci­tadel’s as­sets un­der man­age­ment have grown from $4.2 mil­lion at its found­ing in 1990 to $16 bil­lion at the end of 2013. In Fe­bru­ary, founder Grif­fin, an alum­nus of Har­vard Univer­sity, said he would do­nate $150 mil­lion to Har­vard Col­lege, the big­gest sin­gle gift to the col­lege ever. The money will largely go the col­lege’s fi­nan­cial aid pro­gram. The es­ti­mated an­nual cost of at­tend­ing Har­vard Col­lege is nearly $60,000, ac­cord­ing to the Col­lege Board.

About $140 mil­lion of the do­na­tion will go to­ward cre­at­ing 200 Grif­fin schol­ars and pro­vid­ing match­ing funds for a new pro­gram that is to cre­ate 600 scholarships. In re­turn, Har­vard will re­name its col­lege’s fi­nan­cial aid of­fice and its di­rec­tor’s ti­tle af­ter Grif­fin.

Grif­fin, whose es­ti­mated net worth is $4.4 bil­lion, founded Ci­tadel one year af­ter grad­u­at­ing from Har­vard.

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