China state fund open to shorting stocks-fund manager
Mon Mar 15, 2010 1:48am EDT
* China talking with Pyramis on long/short strategy
* Long/short funds traditionally used by hedge funds
* Market neutral strategies “getting institutionalised”
By Kevin Plumberg
HONG KONG, March 15 (Reuters) – China’s $300 billion sovereign wealth fund is looking at directly investing in funds that could benefit from falling equity prices, a top manager at Pyramis Global Advisors said on Monday.
China Investment Corp [CIC.UL] spent last year diversifying its investments into commodities, real estate and other asset classes, though the ability to short stocks means the state-backed investor would employ a strategy traditionally used by hedge funds.
“China has opened up its receptivity to looking at and understanding the benefits of long/short types of capabilities,” Young Chin, chief investment officer of the institutional focused unit of Fidelity Investments, said in an interview.
“The dialogue has just started with China being interested in these products, so we’re continuing to look for opportunities to help in terms of that dialogue,” he said.
Pyramis, which has $152 billion in assets under management, offers a suite of long/short equity funds, or so-called market neutral strategies, that try to profit from both increasing and decreasing prices in one or more markets.
Last month, CIC disclosed a number of large bets on individual stocks, including a $3.54 billion stake in Canadian miner Teck Resources Ltd (TCKb.TO) and a $1.77 billion stake in Morgan Stanley (MS.N). [ID:nTOE61802J]
Shorting equities is a controversial investment strategy, especially after lawmakers blamed the failure of investment banks Bear Stearns and Lehman Brothers partly on short selling.
U.S. securities regulators are currently considering new short-sale restrictions with no exemptions for market makers. [ID:nN23153704]
Chin from Pyramis agreed that some regulation may be required because of market abuses of short selling, though he believed the ability to short sell securities improves price discovery.
“We believe the whole long/short space is in the process of getting institutionalised,” he said.
(Editing by Jonathan Hopfner)