Russell Flannery Forbes Staff
Shanghai’s Hongkou district was home before the country’s Communist revolution to thousands of often stateless immigrants fleeing Hitler that lived in what was called the Jewish ghetto. Landmark pre-war buildings in the area such as Broadway Mansions and the Astor Hotel are still standing, open as tourist spots and represent fairly well-preserved throwbacks to another era of the storied city’s history.
Since China launched its economic reforms in the 1980s, Hongkou has lacked the success of Shanghai’s wealthier areas such the Lujiazui financial district located directly across from it on the other side of the Huangpu River that divides Shanghai into two halves. The Hongkou government on Friday took a step toward catching up with the opening of the Shanghai Hedge Fund Zone. Hongkou aims to piggyback on Shanghai’s existing appeal to foreign financial service companies through a new program that offers tax and other benefits to hedge fund management companies that wish to do business in the country. Hongkou’s move also follows the establishment of the Shanghai Trade Free Zone in the city last month, another move by the Shanghai government to boost service industry growth.
China’s government last month reportedly approved applications from six hedge fund companies to raise local-currency funds for offshore investment: Man Group, Winton Capital Management, Oaktree Capital, Citidel, Canyon Partners and Och-Ziff.
The Hongkou hedge fund “zone” courting them as tenants consists of just one building – CITIC Tower, but the area will expand in the future, says Kenny Li, the CEO of KKM Capital, a consultant to the district government and helping to bring firms in. We spoke in a conference room located on CITIC Tower’s 30th floor, which boasts sweeping views of Hongkou.
Besides the tax incentives, companies will benefit from rents that are 40% lower than in Lujiazui. The building will offer 24-hour support that is valued by fund managers that are trading around the clock, Li said.
China has already approved more than $80 billion of overseas fund investments though a program that doesn’t cover hedge funds, according to reports. The new program aimed at hedge funds -- known as the Qualified Domestic Limited Partner, or QDLP, scheme -- would also pave the way for licensed companies to provide fund-management consulting services to local fund management firms that operate hedge funds, Li said. Some 38 companies are likely to be operating in the Hongkou Fund Hedge Fund Zone as soon as the end of 2014, the government-published Shanghai Daily reported today.
Underscoring the huge pools of potential wealth to be managed by the hedge fund industry, the 2013 Forbes China Rich List unveiled on Wednesday identified a record 168 billionaires in the country. The aggregate wealth of the richest 400 Chinese increased by 35% from a year earlier to $570 billion.
Shanghai will play host on Nov. 11-13 to a popular conference among global hedge fund managers, “Battle of the Quants.” Click here to listen to an interview I did on Thursday with conference organizer Bartt C. Kellerman, who explained why he is optimistic that China is on the cusp of a new phase of financial industry deregulation and why quantitative fund managers find Chinese markets that can be “very emotional” to be of interest. “China is still a relatively young, fresh market where the opportunities are tremendous,” he said.
Conference speakers include Judith Posnikoff, founding partner of PAAMCO, Jim Creighton, head of research at Manifold Partners, and Feng Cao, the chief scientist of Internet financing at IBM research.
-- Follow me on Twitter @rflannerychina
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