Type: Offshore Oeic
Aim: Growth by taking long positions in Chinese equities and short positions using derivatives
Minimum investment: Lump sum £2,500
Investment split: 100% in Chinese equities and derivatives
Place of registration: Dublin
Charges: Initial 5%, annual 1.25%, performance fee 20%
Commission: Initial 3%, renewal 0.5%
Tel: 020 7131 8052
Insynergy Investment management has teamed up with GAM to create its absolute China fund, a regulated version of GAM’s Greater China equity hedge fund, run by Michael Lai. It will take a long and synthetic shorting approach to equities, using derivatives to create short positions within the Ucits III rules.
Putting the fund into its market context, Chelsea Financal Services managing director Darius McDermott says: “When asset managers launch a fund in an already competitive area they need two important factors in their favour if they are to see inflows in to the fund. These are a manager with a strong track record and that they are bringing something new to the table.”
McDermott points out that Insynergy was set up by Spike Hughes, a former Hargreaves Lansdown director, with Dragon’s Den entrepreneur James Caan as its chairman. He feels they are certainly bringing something different to market. “One recurrent investor complaint about China is that it is difficult to judge when to invest given how bumpy Chinese stock markets have been. This fund is predicated on that belief; that investors are genuinely concerned about volatility and best entry point into the Chinese stock market. “ says McDermott.
He notes that to achieve a smoother ride for investors, this fund adopts a long and short investment strategy, with a long bias. “Again this is because the managers believe a long-only investment strategy, run by other existing funds and the preferred choice of some new market entrants, to be an inappropriate strategy for running money in this region,” says McDermott.
Despite the name, McDermott thinks it is important to remember this not an absolute return fund that aims to provide a positive return irrespective of market conditions. Instead, the aim is to use shorting techniques to enhance returns and smooth out volatility.
“The fund can also boast track record: Michael Lai, the fund’s manager, has an impressive track record managing a Chinese fund for GAM, on which this new fund is based. Another plus is that the team is based in China and local knowledge should give it a distinct advantage in learning of opportunities over other funds whose teams are not based in the region. The fund has the ability to invest across the Greater China region, including Hong Kong, Singapore and Taiwan, as well as mainland China,” says McDermott.
Turning to the potential drawbacks, McDermott says: “Unfortunately, in terms of charges, this fund is following the trend of other absolute return funds by applying a performance fee. This constitutes an uncapped fee of 20 per cent of returns above three-month Libor. We feel this is an entirely inappropriate benchmark as Libor is unrelated to the volatility of Chinese stock markets.”
Summing up, McDermott says: “This is a fund for those who believe in the long-term China story but are concerned that this Asian powerhouse will continue to blow hot and cold.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average