The lure of leveraged funds in China

Fund management companies in China are offering structured listed open-ended funds (Lofs) to high-net-worth retail investors, with some funds pushing leveraged multi-asset products traded both on exchanges and OTC simultaneously. The latest proposed structures include hedge fund and ETF underlyings. What are these structures and how are fund managers coping with their risks?

Regulators in the US and Europe have expressed concern about the suitability for retail investors of leveraged exchange-traded funds (ETFs) with features such as daily leverage resets, which can lead to a compounding of risk. But in China, retail investors are already actively trading hybrid leveraged ETF-like, asset-backed security products on exchange. These instruments appear to have attracted much less of a supervisory backlash, although new leverage rules are set for introduction.

‘Fenji