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Print articleAnother Deacons "Authorisation First": 130/30 Fund
September, 2007 - Rory Gallaher
Deacons Financial Services Practice Group recently assisted an international fund manager in obtaining SFC approval for the first retail 130/30 fund to be authorised in Hong Kong.
130/30 funds and their progeny are a hybrid between traditional market neutral long only funds and hedge funds in that they typically adopt a long/short strategy which enables the fund manager to buy long and sell short with a view to outperforming the market whilst maintaining a net long position of 100% of the fund’s net asset value. These funds have commonly been structured as "130/30" funds due to the fact the 130% long and 30% short investment ratio is seen to carry the optimum compromise between risk and reward. However, variations of this strategy, ranging from 105/5 to 150/50 funds, have been launched in Europe in the past few years.
The typical strategy of a 130/30 fund is to go long up to 130% of the fund’s net asset value in high growth securities whilst being able to short simultaneously up to 30% of the fund’s net asset value in underperforming securities. This strategy enables a fund manager to benefit from the advantages of short selling which are typically denied to traditional hedge fund managers.
In Hong Kong, SFC authorisation of the first 130/30 product is another example of the SFC’s pragmatic, flexible and market responsive regulatory approach and this may serve to attract other retail funds with similar strategies to Hong Kong. However, it remains to be seen how regulators will view these other variations of long/short funds and where the boundaries will eventually be drawn.
130/30 funds and their progeny are a hybrid between traditional market neutral long only funds and hedge funds in that they typically adopt a long/short strategy which enables the fund manager to buy long and sell short with a view to outperforming the market whilst maintaining a net long position of 100% of the fund’s net asset value. These funds have commonly been structured as "130/30" funds due to the fact the 130% long and 30% short investment ratio is seen to carry the optimum compromise between risk and reward. However, variations of this strategy, ranging from 105/5 to 150/50 funds, have been launched in Europe in the past few years.
The typical strategy of a 130/30 fund is to go long up to 130% of the fund’s net asset value in high growth securities whilst being able to short simultaneously up to 30% of the fund’s net asset value in underperforming securities. This strategy enables a fund manager to benefit from the advantages of short selling which are typically denied to traditional hedge fund managers.
In Hong Kong, SFC authorisation of the first 130/30 product is another example of the SFC’s pragmatic, flexible and market responsive regulatory approach and this may serve to attract other retail funds with similar strategies to Hong Kong. However, it remains to be seen how regulators will view these other variations of long/short funds and where the boundaries will eventually be drawn.
