China-Focused Hedge Funds Risk a Wave of Redemptions

19 Apr, 2020 23:58

Singularity Financial Hong Kong April 19, 2020 – Credit Suisse Group AG is advising China-focused hedge funds to communicate more with investors, as industry concerns grow that redemptions from the region will accelerate amid market volatility.

China funds tend to allow monthly redemptions versus the quarterly withdrawals on offer from larger regional and global peers. Firms should be in “frequent and proactive contact with investors” to articulate the opportunities they see in the market and the measures in place to mitigate risk, according to Jonathan Jenkins, the Swiss bank’s Asia-Pacific head of equity sales and prime distribution.

“Fund of funds will generally have a long list of funds they could redeem from and will frequently choose those that appear to be less transparent,” Hong Kong-based Jenkins said.

Commentators are increasingly drawing parallels with the 2008 global financial crisis, when investment losses and redemptions slashed Asian hedge fund assets by 36%. Asian funds were used as ATMs by cash-strapped European wealthy individuals and fund of funds because they had greater liquidity and less stringent redemption terms.

About 86% of China-focused hedge funds allow investors to withdraw money monthly or more frequently, compared with 80% of Asian and European funds, according to Eurekahedge Pte data. Around 45% of U.S. hedge funds allow only quarterly or less frequent withdrawals.