Pudong eyes fund of hedge funds

Authorities in the Pudong New Area are planning to set up a fund of hedge funds this year in an effort to fuel growth in the sector.

"In a bid to provide financial support for the hedge fund industry in Pudong, the local government is considering a fund of hedge funds with an estimated size of 3 billion yuan ($485 million) to 5 billion yuan," Shi Haining, director of the district's financial services bureau, told an investment forum over the weekend.

The fund is part of a 10 billion yuan government plan for the development of the financial sector that is likely to be launched before the end of the year, he said.

A fund of funds is an investment vehicle that holds a portfolio of funds rather than investing directly in stocks, bonds or other securities.

The government has also drawn up a policy to offer subsidies to new hedge funds and incentives to attract more talent to the sector, Shi said, adding that full details will be announced this month.

Pudong, the financial hub of Shanghai, is already home to 300 hedge funds with combined assets under management of about 100 billion yuan.

Despite a slow start, China's hedge fund industry is growing rapidly as the government gradually deregulates the capital market and increased wealth drives demand for investment products.

Paul Smith, managing director of CFA Institute's Asia-Pacific operation, said last month that the country's hedge fund market is worth about US$40 billion, the largest in Asia.