Hedge funds given QDLP quotas: paper

Six overseas hedge funds have received approval to accept capital from institutional investors and high net-worth individuals on the Chinese mainland for investment in foreign secondary markets, the 21st Century Business Herald reported Friday, citing sources close to the matter.

Specifically, Man Group, Winton Capital Management, Oaktree Capital Management, Citadel, Och-Ziff and Canyon Partners have each been handed a market entry ticket with an investment quota of $50 million, according to the newspaper.

The funds will reportedly operate under the experimental qualified domestic limited partner (QDLP) scheme.

As of press time, financial regulators in China had yet to officially confirm or comment on this news.

China's capital control policies have long kept foreign hedge funds at bay, although a series of reforms and programs introduced over the past decade have created conduits through which qualified institutions and investors can move capital into or out of the country.

Reports last December said the QDLP scheme could launch with an initial quota of $5 billion.

The Herald's sources reportedly said that the combined $300 million quota shows that regulators are approaching the new scheme with caution.

In comparison, China's qualified domestic institutional investor (QDII) program, which allows onshore capital to be invested into securities overseas, had a total quota of $87.58 billion by the end of August, industry data show.

Liu Yiqian, a fund analyst at Shanghai Securities, told the Global Times Sunday that the reported QDLP quotas should be sufficient to test the scheme, although regulators will likely streamline operating procedures and expand the program if trials go smoothly.

Whether investors are receptive to the program though remains a matter of debate among analysts. Many see China's underutilized QDII quotas as evidence of thin demand.

Liu disagreed with such views, although he admitted that the QDII scheme has proven less popular than many had expected.

"Hedge fund (and QDII) investors represent two different client bases. Hedge fund clients have more wealth and more financial knowledge, so the entry bar is higher," he said.

According to a recent report coauthored by China Merchants Bank and Bain & Company, high net-worth individuals on the Chinese mainland held 22 trillion yuan ($3.6 trillion) in available investment capital by the end of 2012, up from 15 trillion yuan the previous year.