A: I cannot say specifically whom we have invested in. But I can share some names whom we have been following. Greenwoods Asset Management has eight or nine years of track record in China. They are very innovative in terms of launching new products, and are very thorough in terms of their due diligence.
Another example is Sino Vision Greater China fund, which is a market neutral strategy launched by a Taiwanese team. This is relatively unusual because it’s difficult to find enough short opportunities or outperforming stocks.
Q: Your China Red Fund returned 5.8% for the past year, and averaged 8.4% since inception, against a benchmark of cash return + 5%. What’s your expectation of returns going forward?
A: Going forward, we definitely would like to see an uptick in terms of our return targets. Internally, our team expects the fund to deliver 12% to 15% per annum, net of fees. The market has been tough for the past three and four years. (On absolute terms,) these don’t stand out as stellar numbers, but on a relative basis, our product has delivered significant outperformance.
Q: What is the fund’s fee structure?
A: We charge 2% management fee and 10% performance fee.
Q: Lastly, fundraising has been difficult for fund-of-funds (FoFs) as limited partners (LPs) question the viability of the product. Are you optimistic about FoF’s future?
A: A lot of people are saying FoFs are a dying business. I do not completely agree. For some of the developed markets where big institutional investors have accumulated expertise in selecting managers, FoFs might play a lesser role.
But for emerging markets, most of the global asset allocators have not been investing in these markets for too long. Here, I would say FoFs could still play an essential role, providing a one-stop solution.
About Theodore Shou:
Theodore Shou is the international chief investment office at fund of hedge funds manager, Skybound Capital. Before joining Skybound in 2011, Shou worked at HSBC Private Bank, responsible for manager selection, as well as in a family office in Hong Kong called HGI Capital.