SG prepares fund of hedge funds for Hong Kong retail investors

SG Securities, a unit of France’s Société Générale, is preparing to launch a new capital guaranteed fund on a basket of global hedge funds by the fourth quarter of the year, according to the unit's Hong Kong-based managing director for equity derivatives and structured products Raphael Blot.

The product is already available through private placements, and the new offering will be sold to Hong Kong retail investors.

The move follows the city’s new guidelines on hedge funds for retail investors. Blot said SG is currently structuring and working on the legal documents for the offering, which will then have to be approved by Hong Kong’s Securities and Futures Commission.

He said SG is not the only bank preparing such a product, as most other major banks in the market are likely to take advantage of the new legislation.

SG has already launched several capital guaranteed funds in Hong Kong. According to the Hong Kong Investment Funds Association, capital guaranteed funds attracted the equivalent of $3.81 billion in 2001 – about 40% of total mutual funds sales in Hong Kong that year.

Blot said the first half of this year has seen continued growth in capital guaranteed funds and growth in the second half "should remain rather strong", partly due to a raft of funds of hedge funds likely to be launched towards the end of the year.

Hedge funds have had a bad image among investors because of some highly publicised scandals in the US, which could explain why Hong Kong investors have shied away from such products that are still perceived as highly risky.

Capital guaranteed funds of hedge funds are therefore likely to be successful in Hong Kong because they offer protection from capital losses while offering the kind of returns hedge funds can achieve.