US hedge fund raises money from wealthy Chinese to invest abroad
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.