Hedge Fund

Member listLam, Ho-kei Jan023011Ng, Lok-hang Jessica033125Chan, Ka-po Kate033139Lee, Tak-ming Alvin033228Wong, Wing-yin Winnie034025Kwan, Cheuk-shing Elvis035052

History of Hedge Fund

Hedge trying to offset possible lossesbegin in 1949 by Alfred Winslow Joneshis strategy posted on Fortune short selling and leverage 1952 A.W. Jones & Co First Hedge Fund continuous profitcombination of shared risk to ensure goals father of hedge fund

History of Hedge Fund

History of Hedge Fund (cont)Fail & success, quiet & hot over 2 decades

Late 1990s Great development & grow rapidly

Currently, over 6,000 exist in industry size at $1 trillion

Hedge Funds in Hong KongHistory of hedge funds relatively short in Hong Kong

Intended for sale to public to be authorized by SFC comply with hedge funds guidelines issued by SFC in 2002

Hedge Funds in Hong Kong (cont)First three authorized funds First quarter of 2003 2 single hedge funds & 1 FHF

Figures from AisaHedge first half of 2005 new hedge funds about US $3.5 billions established in Asia 1/3 were entered Hong Kong

Retail Hedge Fund in Hong Kong

History

First Retail Hedge FundApproved by the Special Administrative Regions regulator SFC

Offer to public beyondProfessionals fund manager, divisions of banks, insurance companies &certain pension fund Private Placement limited number of persons

Changes in Regulations Allow fund managers to single strategy hedge funds, FoHFs & capital-guaranteed hedge funds to retail investors

Minimum subscriptions $50,000 for single strategy fund $10,000 for FoHFs

First Retail Hedge Fund (cont)Authorization of first 3 hedge funds on 28/11/2002 2 single strategy hedge funds JF Asia Absolute Return FundJF Greater China Absolute Return Fund

one FoHFs HSBC Global Strategy Hedge Fund

Regulation of Hedge Funds in Hong Kong

RegulationAuthorization regime govern by SFCGet authorization before selling in the marketSpecific requirements on fund managersMinimum purchase amount

Fund manager4 additional requirementsAssets under management (AUM)Risk management profileInternal control systemInformation disclosure

Fund manager (cont)Professional expertise

5-year general experience 2-year experience in specific hedge fund strategy

Fund manager (cont)Amount of assets under management

At least US$100 million

Fund manager (cont)Risk management and internal control systemConsider business natureConsider business riskSet up risk management processMonitor the model

Fund manager (cont)Appointments of representatives and agentsagents involved in the daily operation e.g. administrators, custodians, prime brokers Sufficient know-how in their own areasProvide adequate information and training to their selling agents

Regulatory Parameters

Regulatory ParametersIf any company has not complies with the various requirements, then:liable for a fine of up to HK$100,000If it incurred for matters (e.g.: prospectus containing an untrue statement )Additional penalties (fines of up to HK$500,000 and imprisonment for up to three years)

Regulatory Parameters (cont)Prospectus included:any prospectus, notice, circular, brochure, advertisement, or other document

offering any shares or debentures of a company to the public

calculated to invite offers offering any shares or debentures of a company to the public

Offer to 'The Public'There is an exemption:exempt from the requirement to prepare and register a prospectusIt is necessary that:He offer is either not made to 'the public' ,or;The offer falls within one of the available statutory exemptions

Offer to 'The Public (cont)Two available exemptions:

Professionals only

Private placement

Six types of Hedge Funds in Hong Kong

Six Types of Hedge Fund in Hong KongHSBC Global Strategy Hedge-USDJF Asia Absolute Return-Notional Class AJF Greater China Absolute Return-0301JF Japan Absolute Return-0308JF Korea Absolute Return-0309Man Hedge Diversified Ltd

HSBC Global Strategy Hedge Fund

NAV (2006-03-31) 12.499Total Net Assets 17,960 (in thousand)

Fund performanceAnnual Returns (%, USD) Growth of $10,000

2004 gain 5.16%2005gain 8.73%Now gain 4.24%

Fund factMinimum Purchase(USD )Initial Investment10,000Additional1,000

Fund fact(cont)Annual ExpenseMgt & Distribution Fee1.65%Sales FeesInitial5.25%Deferred---

JF Asia Absolute Return JF

NAV (2006-04-21)44.0127Total Net Assets(000's)85,300

How has this fund performed?Annual Returns (%, USD) Growth of $10,000

2003 27.5%2004 -4.13%2005 -1.67%Now 17.93%

Fund factMinimum Purchase(USD )Initial Investment50,000Annual ExpenseMgt & Distribution Fee1.00%Sales FeesInitial5.00%

JF Japan Absolute Return JF

NAV (2006-04-21)17589.9200Total Net Assets(000's)44,905,300

How has this fund performed?Annual Returns (%, USD) Growth of $10,0002004 23.86%2005 7.13%Now -1.62%

Fund FactAnnual ExpenseMgt & Distribution Fee1.00%Sales FeesInitial5.00%Deferred---

Case Study 1HSBC Global Strategy Hedge Funda fund of hedge funds a diversified portfolio made up of equity long/short hedge funds

What does this fund own?Cash 3.5% Stock 0%Bond 0%Others 96.5%

HSBC Global Strategy Hedge Fund (Cont)Inception Date:2003-02-28Manager Name: Team ManagedFund Advisor: HSBC Republic Investment Limited

Fund performanceAnnual Returns (%, USD) Growth of $10,000

2004 gain 5.16%2005gain 8.73%Now gain 4.24%

HSBC Global Strategy Hedge Fund (cont)

Fund: HSBC Global Strategy Hedge Fund USDBenchmark: ---Total Return

How risky is this fund ? Worst Quarter Return2.54%Number of Funds in Category: 5 diversify risks

Case Study 2JF Asia Absolute Return - Notional Class A Aggressively managed portfolio of equities, bonds and currencies, and derivatives of any of theseInvesting primarily in the Asia-Pacific region (including Japan)

JF Asia Absolute Return - Notional Class A(Cont)Inception Date:1998-10-30Manager Name: Victor LeeMgr Start Date: 2005-07-18

How has this fund performed?Annual Returns (%, USD) Growth of $10,000

2003 27.5%2004 -4.13%2005 -1.67%Now 17.93%

JF Asia Absolute Return - Notional Class A (Cont)

How risky is this fund ?Worst Quarter Return 12.34%Number of Funds in Category: 5

Risk Profile(3-year standard Deviation)