5 May, 2016
Hong Kong International Airport is a fine airport to be sure, but after five and a half hours sitting in the airport lounge, waiting for my delayed flight to Shanghai to depart, it was beginning to lose its appeal.
This was only the second time I had headed the two hours or so north from my home base of Hong Kong to the most populous city in the People’s Republic of China[1], and the first time had run like a military operation. This time certainly didn’t appear to be getting off to such a great start.
Fortunately, my colleague Tom Dugdale (a fellow investment funds lawyer, who was travelling with me) and I got all the bad luck out the way up front. From the moment we descended into Shanghai Pudong International things got back on track.
Tom and I were visiting Shanghai as part of the delegation from our law firm to attend the 2nd Annual Hedge Fund China Summit 2016. We were to be joined at this conference by two of our colleagues based in our Shanghai office.
Actually, not only were we in town to attend the conference, but I was actually scheduled to speak at the conference. Now, as excited as I may have been to spend some time in frenetic Shanghai, anyone who has ever had to speak in front of a room of several hundred people will know that this was the one part of the trip that I was not really looking forward to[2].
Anyway, we had decided to head up a couple of days prior to the conference and spend some time visiting clients, and Shanghai law firms with whom we work regularly. This was a great opportunity to hear about what fund managers, and their advisors on the ground in Shanghai, were focused on. One of the key points discussed was the increasing difficulty of remitting RMB outside of China. Given the government’s stated long-term policy aims of opening up China’s capital account and internationalizing the currency[3] this seems a step backwards in the continuing development of China’s capital markets.
The other key point that a lot of fund managers discussed was proposals about increased regulation of the fund management industry and the offering of securities. Unlike increased currency controls, I suspect that these developments are a good thing, as my understanding is that this regulation is being increased from a very low base.
One striking example of how under-regulated the China securities markets are, compared with places like the US and UK, was a discussion that I had in one meeting informing me that hedge fund offerings would no longer be permitted to be made with “WeChat”.
For those not familiar with “WeChat”, it is sort of like “WhatsApp”[4]. I think it would be safe to say that regulation in most developed markets long ago reached a point that the offering of securities is required to be done with a prospectus or private placement memorandum rather than a “WhatsApp” message. Greater regulation, and the removal of some “cowboy” operators, will be beneficial to the long term growth of the hedge fund industry in China.
After two days of jumping in and out of our hotel car and heading from meeting to meeting, we were quite happy to spend the day of the conference in one place. The Renaissance Shanghai Pudong Hotel.
The conference was attended by several hundred people on a Saturday, representing a good mixture of fund managers, administrators, prime brokers, lawyers, accountants, and other assorted hedge fund industry participants[5].
Judging by the number of participants attending, there is great interest in the burgeoning hedge fund industry in mainland China. The fact that this was only the second time this conference has been held is indicative of the fact that in China this industry is still in its infancy. After having attended the inaugural event last year, it was very encouraging to see how much bigger and better the event was this year. I fully expect this upward trajectory to continue, and for the hedge fund industry in mainland China to develop very significantly over the medium to long term.
As if we hadn’t all had enough fun already, the conference was followed by an awards dinner where my firm, Harneys, picked up the trophy for “Best Offshore Law Firm for Hedge Funds”.
[1] Don’t take my word for it – Wikipedia says so: https://en.wikipedia.org/wiki/Shanghai
[2] Well, not any more than I generally look forward to a trip to the Dentist anyway.
[3] Possibly, with a goal to someday rival the US Dollar.
[4] Actually, it is kind of like the integration into a single piece of software of WhatsApp, Facebook, Paypal…maybe Twitter and Instagram….and, oh I don’t know ….maybe Super Mario Brothers. If you haven’t been to China it is difficult to adequately describe how extraordinarily prevalent this technology is in everyday life. However, there are certainly some things that it should not be used for.
[5] ….and not a single one of them “booed” as I left the stage after delivering my 30 minute presentation on the structuring of offshore hedge funds.
