China National Pension Fund Adviser Zhang Plans Hedge Fund‎

An adviser to China’s enormous state pension fund is planning to return to the hedge fund world by forming JT Capital Management, a China-focused fund.

(June 1, 2010) — A top adviser to China’s $130 billion state pension fund and a former Asia prime brokerage head at Morgan Stanley are working together to start a China-focused hedge fund in September.

According to Bloomberg, Hong Kong-based JT Capital Management Ltd. is planning to raise $100 million for the fund. Chief Investment Officer Larry Zhang, formerly a partner at GSA Capital Partners in London who will be JT Capital’s co-chief executive officer, told Bloomberg that he will team up with Kurt Baker, who was previously at Morgan Stanley. The fund will trade Chinese stocks listed domestically or on an international exchange, such as Hong Kong or the U.S.

While China hedge fund managers have found it difficult to raise money from international firms increasingly worried about transparency and risk control, Zhang said in an interview with the news agency that he and Baker will team up to build an investment platform with local information access and high levels of transparency. At JT Capital, which will maintain a research office in Beijing, Zhang will be responsible for overseeing investments and Baker will head operations.

JT Capital will use research of macro-economic cycles, government policies and bottom-up fundamental analyses to pick stocks, Bloomberg reported, while short-selling single stocks listed internationally.

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To contact the <em>aiCIO</em> editor of this story: Janhavi Agarkar at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

A preliminary study in Canada shows that while research has shown that funds with published investment beliefs achieve better risk adjusted results, a majority of funds are secretive about their investments.

(May 25, 2010) — Preliminary studies indicate that transparency about investment beliefs often leads to greater performance.

A new study reveals the growing power of pension funds — which managed more than $23,290 billion in the 11 largest pension markets worldwide in 2009, compared to $14,236 ten years earlier, according to Towers Watson — and says that today, it is simply not enough to have a good organization, good staff and a well defined and embedded mission. The results of the study support pension funds focusing on asset allocation by pursuing the lowest cost route, taking advantage of internal resources when possible. The report also highlights the hugely detrimental investor mindset of focusing on performance over risk.

Researchers of the report for the Rotman International Centre for Pension Management in Canada show that only 40 of the world’s 500 largest pension funds publish explicit investment beliefs. A previous study — Koedijk and Slager in 2007 — suggests that pension funds who are public about their investments outperform their peers.

The new report analyzes the connection between pension fund size, investment beliefs and performance measures. It concludes that the largest funds are able to manage assets internally, benefiting from greater net returns and lower costs. Nevertheless, these large funds actively pursue the latest innovative investment strategies, which will not improve performance on a risk-adjusted basis, the report found.

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Additionally, the report supports diversification, discovering that diversification is “the only free lunch in investment management.” Yet, adding more alternative strategies “apparently offsets the return-risk improvement,” the study reveals.

The research, “Investment Beliefs That Matter: New Insights Into the Value Drivers of Pension Funds,” analyzes the relationship between different ‘investment beliefs’ and performance from more than 600 pension funds, with research conducted between 1992 and 2006 on subjects such as active management, alternative asset classes and leading-edge investment strategies. The report’s authors, Slager, Kees Koedijk of Tilburg University and Centre for Economic Policy Research and Rob Bauer of Maastricht University and pensions research institute Netspar, claim that the current small proportion of pension funds publishing explicit investment beliefs has remained static in recent years despite “the growing focus on governance and investments.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742