Some people think that foreign private placements decision to increase capital is related to preparing for private to public transfer. However, such hedge fund institutions as qiaoshui have made management fees and excess performance as their main income. The increase in capital is related to the increase in market layout in China. Qiaoshui rarely disclosed its strategy or investment strategy to the outside world. Earlier, Dalio said in two exclusive interviews with the first financial reporter: if you dont have some Chinese exposure, you will miss a large part of the worlds development, which means your investment income is lagging behind. Therefore, from a portfolio perspective, foreign investment must have exposure to the Chinese market, and the time is right.
Bridge water capital increase China WFOE
In the past few years, Bridgewater has been expanding its market in China, including increasing its offices in China (Shanghai, Beijing) and increasing its holdings of Chinese assets through its all-weather strategy. On March 7, 2016, qiaoshui registered for the first time in China, with the Chinese name of qiaoshui (China) Investment Management Co., Ltd. and the registered capital of RMB 50 million (about USD 7.67 million). According to the reporter, at present, qiaoshui Shanghai office is located in the global financial center building.
Since 2017, the door of Chinas financial opening has become wider and wider. A shares have joined the MSCI index, RMB bonds have been included in the Bloomberg Barclays index (bbga), and foreign institutions have been allowed to set up WFOE and record it as a private fund manager. On October 11, 2019, the CSRC further clarified the time point for lifting the restrictions on the ratio of foreign shares of futures, funds and securities companies. Among them, the restrictions on foreign shares ratio of fund management companies will be officially cancelled from April 1, 2020, that is, foreign private equity can formally apply for public funds.
(source: qiaoshui official website)
Although public offering is not the gene of hedge funds such as qiaoshui and Yuansheng, capital increase is inevitable if Chinas layout is to be increased. The increase of Bridgewater to US $44 million shows the commitment of the Dalio team to this market. Its also a perfect example of a global company committed to adding code to the Chinese market and continuing its DNA. Peter Alexander, managing director of Z-Ben advisors, said.
Even if we do not do public funds, if we want to increase investment and research personnel and operating expenses, we need to increase WFOE capital. The head of a foreign private placement in China told the first financial reporter.
Unusual way to develop Chinese market
Compared with more than 20 foreign private placements, qiaoshui has its own way of market development in China, which is described as Gao Leng by the head of foreign private placements.
Alexander revealed that in just 15 months, the scale of qiaoshui all-weather China fund has reached 666 million US dollars, and there are only six investors, which shows that the financing channel of qiaoshui is very stable, and the product scale is easier to increase. In fact, the more investors, the better. If the high net worth individual investors, the amount of capital is not necessarily large, but the maintenance cost is relatively higher, and the institutional investors are more likely to increase the amount.
These investors are bound to be very stable. Because Chinese regulators require foreign private equity to issue products within six months after the filing, they need to find long-term stable investors to do business, a director of foreign private equity market development told reporters. Unlike other foreign private equity companies that sell products to high net worth individuals on a commission basis, qiaoshui is more direct to Connecting institutions, through the form of special accounts or investment advisers to promote business, saves a lot of communication costs.
At present, more than 20 foreign institutions including qiaoshui have obtained wfoepfm qualification. According to the data disclosed by the fund industry association in August this year, there are 21 foreign-funded institutions registered in the association, with 46 registered products and an AUM of 5.4 billion yuan. Wfoepfms qualification enables foreign investors to establish institutions in China for the first time and raise funds from China to invest in Chinas stock and bond market. In the early days, foreign capital often needed to enter Chinas capital market through QFII (qualified foreign institutional investors), Shanghai Hong Kong stock connect and other channels, and the source of fund-raising was also foreign capital.
Add Chinese market with balanced combination
Bridgewaters commitment to the Chinese market has a long history. Dalio began to pay attention to Chinas development and opportunities 30 years ago, and sent its son to Beijing to learn Chinese.
Dalio recently said that China is rising. Why should we avoid investing in a rising economy? I believe in diversity. At the beginning, we all rejected new things, which is also the reason why people from all walks of life did not enter China. But when its sorted out, valuations can become very expensive. I think this is the most appropriate time to invest in China. After MSCI is incorporated into A-share, the world will accelerate the layout of the Chinese market.
The risk of investing in China was often mentioned by foreign investors in the early years. Dalio said: there are risks everywhere.. In his view, Europe is full of risks, monetary policy has been exhausted, politics is extremely fragmented, and Europe has not been deeply involved in the scientific and technological revolution; the United States also has risks, and the gap between the rich and the poor, political system problems, fragmentation of decision-making and weak monetary policy are all worth worrying about.
Compared with developed countries, Dalio previously told the first financial reporter: the biggest difference in China is that the policy coordination is stronger, and the coordinated promotion of monetary and fiscal policies is easier to achieve, which can have a greater role in promoting the economy. For example, at present, Chinas decision-making process is faster to expand fiscal expenditure, reduce taxes and fees, and implement moderately loose monetary policy. In other countries, however, such coordination is time-consuming and requires more conflict management.
Of course, confidence is not enough. Qiaoshuis global well-known all-weather strategy to layout the Chinese market is the choice after strict back testing. In April 2019, Greg genson, the joint chief investment officer of bridge water, mentioned in a report that a balanced portfolio of Chinese assets (i.e. all-weather Chinese portfolio) can obtain better risk return than a portfolio of Chinese stock market, bond market or 60 / 40 of equity bond alone without having to bet on factors such as Chinas economy. Compared with investing in Chinas stock market alone, this combination can generate higher returns, but it can only take 1 / 3 of the risk and avoid the large fluctuations of Chinas stock market.
According to qiaoshuis backtesting of the market from August 2002 to March 2019, the total returns of investing in Chinese stock market, Chinese government debt, 60 / 40 debt portfolio and balanced portfolio are 6.1%, 4.1%, 6.4% and 9.8% respectively, while the volatility is 27.5%, 5.4%, 16.4% and 11.3% respectively, and the risk return ratio is 0.13, 0.29, 0.24 and 0.65.
The key is to speed up the opening up of Chinas market. The blue line shows the total scale of Chinas stock and debt market, the red line shows the proportion that foreign capital can hold (more than 10 trillion US dollars), and the green line shows the proportion that foreign capital actually holds at present. On the whole, foreign investment has not made full use of the opportunity of opening up, and still allocates Chinas assets at a very low level, which does not match the importance of China in the global economy and the overall scale of Chinas market. Greg mentioned.
Source: responsible editor of the first financial daily: Ren Hui, nbj9607