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SBAI Sees Growing Interest In China

The Standards Board for Alternative Investments (SBAI), previously the Hedge Fund Standards Board, has, since it was founded in 2008, been pushing the international alternative investment industry to commit to high standards and adopt a more transparent approach to communications with institutional investors. Centred around 5 core themes – disclosure, valuation, risk management, fund governance and shareholder conduct – the signatories to the SBAI’s ‘comply-or-explain’ policy voluntarily disclose their level of conformity with the SBAI standards, providing better transparency to investors during both the pre- and post-allocation process.

The organisation’s engagement with the Chinese alternative investment industry began in earnest in 2015 with a joint event held with the Asset Management Association of China (AMAC), and continued in 2016 and 2017 with events hosted in collaboration with Lujiazui Financial City in Shanghai.

What was the catalyst for the push into China? Thomas Deinet, Executive Director of the SBAI, said:

“Our Investor Chapter members have long been watching the Chinese alternative investment space, and local managers in China needed a greater understanding of global investor expectations in relation to standards and practices. So, partnering with AMAC and Lujiazui Financial City to hold educational events enabled us to make that connection.”

Indeed, the SBAI is observing a generally warm reception. Deinet observes:

“We are at the beginning of the process of engaging with the Chinese alternative investment industry and have so far not encountered any resistance.”

Thomas Deinet
SBAI's Thomas Deinet

Springs Capital, a hedge fund headquartered in Beijing, was the first domestic Chinese manager to sign up. Sidney Ma, Director, Investor Relations at Springs Capital, said

“The rationale for Springs was relatively simple. As a manager, we constantly benchmark ourselves against the highest international standards. Signing up for SBAI was a natural step for us. Of course, this is a continued learning process and we are constantly monitoring our internal practices and how we can improve as a firm with the help of our current asset owners from around the globe.”

Jasper Capital International, a $1bn quantitative hedge fund based in Shenzhen, is also a signatory. Benjamin Pollock, Senior Vice President of Global Investor Relations, said

“Given our culture and background as investors who started their careers in the United States, it seemed natural to us to sign up.  Indeed, when we became signatories to the SBAI, we actually found that investors started to contact us.”

Jasper has an edge, however. The partners of the fund were all educated in the US, and worked for funds based there before moving back to China to start their own firm. Pollock says working in that environment gives their firm a different perspective.

“China is such a performance driven market, with less regard for risk; this is because of the culture of the private wealth money that dominates the assets managed by local funds. However, for us, given our time in the US, we’re more aware of the emphasis placed on risk by the investors we’re in touch with. It’s important to us to engage on that level.”

A recent event in Shanghai in December expanded on the curiosity. The event focused on international institutional investor expectations and how to meet them, how domestic Chinese managers can attract international capital, and how to build an institutional investment business. Other topics covered included common reasons why managers fail their investor due diligence and how the Alternative Investment Standards address key investor concerns.

Foreign institutional investors are also keeping a close eye on the enthusiasm with which domestic Chinese private fund managers are adopting the standards. Ted Lee, Senior Porfolio Manager at Canadian Pension Plan Investment Board, said:

“Good industry practices are critical for attracting international investors. CPPIB applies the same standards, regardless of where we invest, and we encourage managers to commit to the SBAI process by signing up to the Standards and participating in the ongoing process of interaction established by the SBAI between allocators and the industry.”

Deinet sees further progress being made in 2018. “Firms seeking to attract international capital are engaging with us in order to understand institutional investor requirements, and we expect that to continue into 2018 as global investors pay more attention to China.”